To meet the tremendous expenses of the Civil War, Congress in 1862 authorized the issue of United States notes, and within a few months $400,000,000 of these notes were forced into circulation. They were made legal tender for all debts, public and private, hence the name "legal tenders."1 The injection of this enormous amount of money into the circulation caused gold to disappear and reduced the country to a paper standard. At one time the greenbacks depreciated in value to about 35 cents to the dollar and prices rose and fell with the fluctuating value of these notes. When the Government suspended specie payments in 1862, silver coins also disappeared from circulation. To meet the need for change, merchants and manufacturers issued tickets, due bills and other money substitutes. Congress tried various expedients to supply change; first, it authorized the use of postage stamps; then postal currency; and, finally, fractional paper currency in denominations corresponding to the subsidiary silver coins. At one time over $49,000,000 of this fractional paper currency was outstanding.
Another financial expedient of the Civil War period was the establishment of the national banking system in 1863. Banks organizing under this system were required to purchase government bonds against which they might issue their own circulating notes. In 1865 Congress passed a taw imposing a tax of ten per cent on the circulating notes of state banks, which cleared the field for national bank notes. For a number of years after the war the circulating medium of the country was composed of greenbacks, national bank notes, and fractional paper currency.
1 These notes came to be known also as "greenbacks" because of their distinctive color.