Economics and Business

Federal Reserve

What are greenbacks?

Greenbacks are the paper money printed and issued by the U.S. government during the Civil War. The financial demands of the war quickly depleted the nation’s supply of specie (gold and silver). In response, the government passed the Legal Tender Act of 1862, which suspended specie payments and provided for the issue of paper money. (Legal tender is money that must be accepted in payment of any debt.) Since the bills were supported only by the government’s promise to pay, it was somewhat derisively observed that they were backed only by the green ink they were printed with. Hence the name greenbacks. The value of the notes depended on the peoples’ confidence in the U.S. government—and its future ability to convert the currency to coin. As the fighting between the Union and the Confederacy raged, Americans’ confidence in their government fluctuated: When the Union suffered defeat, the value of the greenbacks dropped—one time to as low as 35 cents on the dollar.

Greenbacks remained in circulation after the fighting ended, finally regaining their full value in 1878. After the financial crisis in 1873, many people—particularly western farmers—clamored for the government to issue more. Advocates of the monetary system formed the Greenback Party, which was active in American politics between 1876 and 1884. They believed that by putting more greenbacks into circulation, the U.S. government would make it easier for debts to be paid and prices would go up—resulting in prosperity. The country’s present-day system of paper money is based on the government’s issue of notes, which was made necessary by the Civil War.

