Greenbacks: The Most Loved, Forgotten Currency of the United States
If you are an average reader of financial news, you may have noticed that the US Dollar is frequently called the Greenback. As an ESL student, I always found this confusing.
Why is the US Dollar called the Greenback?
In 1862, the United States was in the middle of the the most expensive civil war in the history of the world and President Lincoln’s federal government was quickly running out of funds to pay for the war.
To meet the government’s financial needs during the Civil War, President Abraham Lincoln borrowed significant amounts of money. To facilitate this debt, Congress passed the Legal Tender Act of 1862.
The new law allowed the issuance of printed money, known as “Greenbacks” because green ink was used on the back of the paper currency. These greenbacks were the official currency of the United States and legal tender. They would be issued and accepted instead of and alongside of gold and silver coins.
A year later, Congress passed the National Banking Act to create a single national currency. Until this point in US history, the American people had used variety of private, foreign and domestic currency. President Lincoln wanted to unify the country’s currency. The National Banking Act placed a very high tax on any currency that was not the greenback, in effect banning all other currencies. No one would want to buy a drink for $1 in greenbacks but $10 in some other currency. Had it been successful, this law could have made the greenback the national currency of the United States replacing gold and silver dollar coins.
Unfortunately for the greenback, however, California and Oregon refused to accept greenback as currency. Flushed with gold due to the gold rush, merchants and governments in the Western states refused to accept greenbacks. So even despite a national currency law, greenbacks could not become the national currency.
Outside California and Oregon, greenback had other issues. Unlike the other common currencies of the time, greenbacks were not on demand notes. They could not be easily converted to gold, so their value depended on the American population’s trust in their government’s finances.
As the civil war went on, based on the turn of each battle and the money required to fight it, the merchants in the United States had less and less reason to trust the central government’s ability to finance itself. Thus in their first full year in circulation, in 1862, the value of greenback against gold fell by nearly 29%. Three months later, in Spring 1863, the value of greenback against gold had fell by another 30% or so. The currency kept losings its value and at its lowest point, in July 1864 as confederate General Jubal Early led his forces within five miles of Washington, D.C., to buy something that would’ve cost $100 in gold you would have had to pay $258 in greenbacks.
Because of these troubles, massive debt incurred during the war, and inflationary pressure on greenbacks, the US federal government stopped printing greenbacks in late 1865 and by 1879 greenbacks were completely out of circulation.
Interestingly, greenbacks were topic of such political debate that they gave rise to a political party. In the 1878 elections, the Greenback-Labor Party elected 14 members of Congress.
Even in as late as 2015, the old greenback had fans. A petition requesting that President Obama restate the greenback as the official currency of the United States received 14 signatures.
How the mighty fall.
