United States Note
In 1861, the first year of the American Civil War, expenses incurred by the Union Government far exceeded its limited revenues from taxation. Borrowing became the main vehicle for financing the war. The Act of the 17th of July 1861 authorized United States Secretary of the Treasury Salmon P. Chase to raise money via the issuance of $50,000,000 in Treasury Notes payable on demand. These Demand Notes were paid directly to creditors and used to meet the payroll of soldiers in the field. While issued within the legal framework of Treasury Note Debt, the Demand Notes were intended to circulate as currency. They were of the same size as banknotes and closely resembled them in appearance. During December 1861, economic conditions deteriorated and with the suspension of specie payment the government broke the promise to redeem the Demand Notes on demand. It did however continue to accept them as payment for import duties and almost all Demand Notes were eventually redeemed.
By early February 1862, Congressman Elbridge G. Spaulding introduced a bill to permit the U.S. Treasury to issue notes as legal tender. This caused tremendous controversy in Congress, as hitherto the Constitution had been interpreted as not granting the government the power to issue a paper currency. Spaulding argued before the House that these were extraordinary times requiring extraordinary measures to save the Government. President Abraham Lincoln signed the First Legal Tender Act into law on the 25th of February 1862. The Act authorized the issuance of United States Notes as a legal tender, the paper currency soon to be known as greenbacks. Initially, the emission was limited to a total face value between the new Legal Tender Notes and the existing Demand Notes. The Demand Notes had been issued in denominations of $5, $10, and $20, and these were replaced by United States Notes nearly identical in appearance on the obverse. In addition, notes of entirely new design were introduced in denominations of $50, $100, $500 and $1,000. The printed promise of payment On Demand was removed and the statement This Note is a Legal Tender was added.
At the end of the American Civil War, Secretary of the Treasury McCulloch argued that the Legal Tender Acts had been war measures and that the United States should soon reverse them and return to the gold standard. The Funding Act of the 12th of April 1866 authorized McCulloch to retire $30 million of the Greenbacks within six months and up to $4 million per month thereafter. He proceeded to do so until only $356 million were outstanding during February 1868. By this time, the wartime economic prosperity was ended, the crop harvest was poor, and a financial panic in Great Britain caused a recession and a sharp decrease of prices in the United States. The contraction of the money supply was blamed for the deflationary effects, and caused debtors to agitate successfully for a halt to the notes retirement. During the early 1870s, Treasury Secretaries George S. Boutwell and William Adams Richardson used a reserve to counteract seasonal demands for currency. They eventually expanded the circulation of the Greenbacks to $346 million in response to the Panic of 1873. In June 1874, Congress established a maximum for Greenback circulation of $346 million, and in January 1875, approved the Specie Payment Resumption Act.
Like all U.S. currency, United States Notes were produced in a large sized format until 1929, at which time the notes sizes were reduced to the small-size format of the present day. Per the Treasury Department Appropriation Bill of 1929, notes issued before October 1928 were 7 3/8 inches by 3 1/8 inches and later issues were to be 6 1/8 inches by 2 61/100 inches. This allowed the Treasury Department to produce 12 notes per sheet of paper that previously would yield 8 notes at the old size. The original large-sized Civil War issues were dated 1862 and 1863, and issued in denominations of $1, $2, $5, $10, $20, $50, $100, $500, and $1,000. The United States Notes were dramatically redesigned for the Series of 1869, the so-called Rainbow Notes. The notes were again redesigned for the Series of 1874, 1875 and 1878. The final across-the-board redesign of the large-sized notes was the Series of 1880. Individual denominations were redesigned in 1901, 1907, 1917 and 1923.
Both United States Notes and Federal Reserve Notes have been legal tender since the gold recall of 1933. Both have been used in circulation as money in the same way. However, the issuing authority for them came from different statutes. United States Notes are redeemable directly for precious metal after the specie resumption of 1879 which authorized federal officials to do so if requested. A commercial bank belonging to the Federal Reserve System can obtain Federal Reserve Notes from the Federal Reserve Bank in its district whenever it wishes. It must pay for them in full, dollar for dollar, by drawing down its account with its district Federal Reserve Bank. The twelve Federal Reserve Banks issue them into circulation pursuant to the Federal Reserve Act of 1913. As a result, public circulation of United States Notes in the form of $1 and $2 bills was discontinued in August 1966, and replaced with Federal Reserve Notes. United States Notes became rare in hand-to-hand commerce and beginning in 1966, the Treasury converted the outstanding balance into new Series 1966 United States Notes.
The United States Congress had enacted the Legal Tender Acts during the American Civil War when southern Democrats were absent from the Congress. After the war, the Supreme Court ruled on the Legal Tender Cases to determine the constitutionality of the use of greenbacks. The 1870 case Hepburn v. Griswold found unconstitutional the use of greenbacks when applied to debts established prior to the First Legal Tender Act as five Democrats on the Court ruled against the Civil War legislation in a 5, 3 decision. Secretary Chase had become Chief Justice of the United States and a Democrat, and spearheaded the decision invalidating his own actions during the war. However, Grier retired from the Court, and President Grant appointed two new Republicans, Strong and Bradley, who joined the three sitting Republicans to reverse Hepburn in the 1871 cases Knox v. Lee and Parker v. Davis. In 1884, the Court granted the federal government very broad power to issue Legal Tender paper through the case Juilliard v. Greenman, with only the lone remaining Democrat dissenting.
For the general public, there was then little to distinguish United States Notes from Federal Reserve Notes after all U.S. currency changed to fiat currency in June 1968. Public circulation of United States Notes in the form of $1 and $2 bills was discontinued in August 1966, and replaced with Federal Reserve Notes. Series 1966 and Series 1966A United States Notes were printed from 1966 to 1969, with distribution into public circulation officially ending the 21st of January 1971. In September 1994, the Riegle Improvement Act released the Treasury from its long-standing obligation to keep United States Notes in circulation. The Treasury announced in 1996 that the remaining stock of $100 United States Notes had been destroyed. Existing United States Notes are still fully usable and are considered legal tender. However, as no United States Notes have been issued since January 1971, all issues have all but disappeared from circulation, and command higher prices than face value as items of numismatic interest.
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Common questions
When were United States Notes first issued and by whom?
The United States Notes were first issued in 1862 under the authority of Secretary of the Treasury Salmon P. Chase following the First Legal Tender Act signed on the 25th of February 1862.
What was the maximum circulation limit for United States Notes established in June 1874?
Congress established a maximum circulation limit of $346 million for United States Notes in June 1874 after expanding circulation to that amount during the Panic of 1873.
When did public circulation of United States Notes officially end in January 1971?
Public distribution of United States Notes officially ended on the 21st of January 1971, although Series 1966 and Series 1966A notes had been printed from 1966 to 1969.
Which Supreme Court case validated the constitutionality of United States Notes in 1884?
The Supreme Court granted the federal government broad power to issue legal tender paper through the 1884 case Juilliard v. Greenman with only one dissenting vote.
Why were United States Notes discontinued as legal tender in August 1966?
Public circulation of United States Notes in the form of $1 and $2 bills was discontinued in August 1966 because they were replaced by Federal Reserve Notes issued under the Federal Reserve Act of 1913.