People refer to the U.S. Dollar using many different terms. You probably heard it called cash, stacks, moolah, or greenbacks. But what are greenbacks, and how much are they worth? Today, the word “greenbacks” is used as a slang term for money or dollars. However, the original term refers to a type of paper currency issued by the United States government in the 1860s. The term specifically refers to the Demand Notes authorized during the Civil War, which got their nickname from the green ink used on the back.
Origins of the Term “Greenback”
The Civil War caused the United States significant financial strain. Congress debated solutions, eventually settling on printing paper money to pay for the war efforts. This came in two phases, the first being Demand Notes, which were redeemable for gold and printed with green ink on the back.
Therefore, the word “greenback” comes from the green ink used on the reverse side of the demand notes to distinguish them from earlier privately issued banknotes. This green ink gave rise to the nickname “greenbacks,” which persists today.
Before greenbacks, only gold and silver coins were legal tender in the United States. Paper money consisted of banknotes issued by private banks, which had value based on the bank’s reputation but were not legal tender. This new paper currency issued by the United States was an obligation of the federal government, not of any private bank.
The second attempt at financing the war efforts came as U.S. Notes. The U.S. Notes were also printed green but were not backed by gold or silver. This made the value of the U.S. Note highly volatile, and inflation had an immediate effect.
Demand Notes
The first government-issued paper currency was called Demand Notes. These were authorized in 1861 at the very start of the Civil War. Demand Notes got their name because they were payable “on demand,” – meaning the government had to pay the note’s face value in gold or silver coins if the holder asked.
About $60 million in demand notes was circulated in 1861 before being discontinued later that year. They relieved some of the strain on coins that were hoarded during the uncertain early months of the war. Demand Notes gave the government some breathing room while it worked on a more comprehensive currency issue.
United States Note
That more comprehensive currency was the United States Note, also known as the Legal Tender Note. First issued in 1862 after the Legal Tender Act, these were the first notes designated as legal tender for all debts by the federal government.
U.S. notes were not backed by gold or silver; people could still use them to pay taxes and buy government bonds. Enough paper notes were issued during the Civil War to allow the government to fund the war without taking on ruinous debt. This unprecedented fiat money supply was critical for war financing.
By creating these greenback dollars, as both Demand Notes and U.S. Notes came to be called, the Union government was able to increase the money supply without relying on its dwindling gold reserves. While they caused inflation, greenbacks allowed the North to mobilize the industry and troops needed to win the war.
Effects of the Greenback
Inflation
By printing large amounts of fiat money not backed by gold or silver, the greenbacks significantly increased the money supply. This led to inflation, meaning the greenbacks declined in purchasing power, and prices for consumer goods increased.
At the start of the war in 1861, a dollar could buy a certain amount of goods. But by 1864, rampant inflation meant that the same dollar could only purchase half as much. For example, prices for commodities like corn nearly doubled from 1860 to 1865.
Wages did not keep up with the rapidly rising prices, leading to dissatisfaction among workers and farmers. The declining value of the greenback dollar meant the government had to print even more to purchase war supplies. This circular effect led to more inflation.
To combat the depreciating purchasing power of the greenbacks, the government eventually took steps like making interest payments on bonds using gold coins only. After the war, greenbacks were gradually phased out, and their supply contracted to combat inflation levels.
The unbacked nature of the greenbacks enabled rapid increases in the money supply to fund the Civil War. Still, it came at the cost of high inflation that eroded the greenback’s buying power and caused economic hardship for many Americans.
Long-term Change in Currency
Though controversial at first, fiat currency issued by the government eventually became widely accepted and even preferred in the United States. The policy adopted under greenbacks of using fiat currency to expand the money supply during wartime rapidly laid the foundations for similar expansions during future wars. This ability to quickly increase the money supply without reliance on gold reserves proved vital, such as during World War I.
Following the success of financing the Civil War with unbacked greenbacks, the government transitioned to a fiat gold standard in 1879. Dollars were still redeemable for gold but without 100% bullion reserves behind them. This pseudo-gold standard allowed the flexible expansion of the money supply when needed, avoiding deflationary pressures of the pre-war system.
By 1913, the stage was set for abandoning commodity backing entirely. The Federal Reserve Act established our modern purely fiat monetary system of currency backed by faith in the government rather than gold. The advantages of flexibility and stimulus spending won out over the disadvantages of inflation.
Value of the Greenback
The demand notes released before the Legal Tender Act are a numismatic treasury, and surviving notes are worth a significant amount. In fact, a single 1861 Demand Note is selling for over $27,000! Notes in good condition can hold a steep premium, but the overall value of greenbacks is determined by the market. Additionally, current U.S. dollars are referred to as “greenbacks” as a slang term, like saying cash. When referencing money currently printed and circulated, the value is exactly face value.
Legacy of the Greenback
The term “greenback” eventually became synonymous with paper money in general, even after the retirement of Civil War greenbacks. Today, “greenback” refers to standard U.S. dollars. The dollars we use today are considered greenbacks in this broad sense.
However, the specific Civil War-era Greenbacks are still remembered for their historical role. Numismatists and history enthusiasts sometimes use “greenback” in its original context to refer specifically to those Demand Notes and Legal Tender Notes issued in the 1860s.
While modern U.S. banknotes are commonly called greenbacks in slang, the original greenback dollars issued during the Civil War have an enduring legacy and value. The unique history behind the term greenback reflects the financial challenges and innovations of wartime America.
