U.S. History

Paper currency has a long and storied history in the United States. In early colonial days, coinage was in short supply. Many of the thirteen original colonies issued paper money while still under British rule. One of the first issuers was the Massachusetts Bay Colony, whose pressing dates back as far as 1690. On most occasions, paper currency was issued in order to fund troops for military efforts.

The Continental Congress also flirted with using paper as money to finance the war. They authorized the use of Continental Currency in 1775, but the experiment failed as printing costs soon exceeded the face value of the notes. It would be another 60 years before anyone else in our country would try again.

In 1836, hundreds of different banks operating under their state's charters were authorized to issue paper currency. In all, about 1,600 of these privately owned banks issued currency, resulting in over 30,000 variations in design. Confusion reigned and the money was only as good as the issuer’s reputation. The situation deteriorated.

By the Civil War, the government imposed a 10% surcharge on each of these notes in circulation. This surcharge effectively forced the issuer to gather in all the notes for redemption, or be forced out of business. Most opted for the latter and any outstanding notes were never honored.

The birthday of actual United States paper currency dates is July 17, 1861. A Congressional Act on this date allowed the Treasury Department to print and circulate money as an act of emergency for the Civil War effort. Interestingly, all American currency from this date forward remains legal tender.

The first notes were Demand Notes. Although it is generally believed that they were issued only with the faith of the government backing them, they were actually redeemable in coin. This little known fact was instrumental in maintaining the public’s faith in paper money even as a critical shortage of coinage occurred due to massive hoarding during the war years. These notes were printed on both sides with the back inked entirely in green, earning them the name “Greenbacks.” The name was to become synonymous with U.S. currency and is still used today.

With the appearance of United States Notes, or Legal Tender Notes, in 1862, the greenback design continued. These notes differed from the original-issue Demand Notes in that the legal obligation of the government was printed on the back. These notes, backed only by the good faith and credit of the United States government, were deemed legal tender by law, essentially forcing everyone to take them as payment for “all debts, public and private except duties on imports and interest on the public debt.”

The federal government began the practice of backing some of its paper currency with gold just three years later in 1865, giving its citizens more confidence in paper. These Gold Certificates remained in circulation until the Gold Reserve Act was issued by President Franklin D. Roosevelt in 1933. The only occurrence of paper currency confiscation by the United States government, citizens had to turn in all Gold Certificates in exchange for other types of paper currency.

Eventually, the United States government regulated paper currency to an even higher degree. The Federal Reserve System assumed the role of our nation's central bank in 1913 and today its notes are the only type of currency issued.

Historically speaking, the widespread acceptance of paper money by the American people is a relatively recent phenomenon. By the end of the 19th Century, paper money was very much a part of the American economy since much of it was redeemable for gold or silver coin on demand. Paper currency became such a regular part of American commerce that by 1963, the government was able to remove all redemption demands with little or no protest from the public.