A greenback is a nickname for U.S. paper dollars. It started around the mid-1860s because these bills were printed using green ink. During the Civil War, when Congress couldn’t tax much, they used paper money to fund the war.
The term “greenback” was not positive back then. It was negative because these bills weren’t strongly backed by finances, and banks were hesitant to give customers the full value of the dollar.
Understanding Greenbacks
It took about fifty years to remove all foreign coins and different state currencies from everyday use. By the early 1800s, the United States decided to try using paper money again. Before that, there were banknotes around, but sometimes banks printed more money than they had actual coins, so the value of the notes dropped.
In the 1860s, the United States printed more than $400 million in legal tender to fund the Civil War. Initially, the government sold bonds to raise money, but the war lasted longer than expected and drained the finances.
Bankers were against the idea of printing paper money because it meant the government would have a big role in the economy. If the war didn’t go well, the government might go bankrupt. To prevent this risk, the value of the paper money depended on how healthy the banks were that issued it.
They were named greenbacks because the backs of the bills were printed in green ink. The government supported this money and said it could be used to pay both public and private debts. However, even though the government supported them, the bills couldn’t be traded for gold or silver.
Demand Notes vs. Paper Notes
Greenbacks came in two types: demand notes and U.S. paper notes. Demand notes were first issued in 1861 and 1862 to pay for government expenses during the Civil War. Then, in February of 1862, the Legal Tender Act allowed the government to issue paper notes, which eventually became the official currency of the United States as demand notes were phased out.
During the Civil War, the value of greenbacks changed depending on how well the North was doing in the war. However, because $400 million worth of greenbacks were printed, their value compared to gold kept dropping steadily.