Somewhat different from representative money is the credit money of a government, which is backed not by an equal amount of gold or silver, but by a reserve fund plus government credit. The credit money of the United States government is United States notes, popularly referred to as greenbacks. These notes were first issued during the Civil War and are legal tender in unlimited amounts. For seventeen years their value in terms of gold fluctuated from forty cents to one hundred cents on the dollar. That is, they varied from a high point where they equaled gold in value to a low point where a dollar note was worth but forty cents in gold. Finally in 1879, after a four years' preparation, the government began to redeem these notes in gold, dollar for dollar. This is known in our financial history as the resumption of specie payments. Since that time they have circulated on a par with gold, simply because every one knows that he can exchange them for gold at the treasury.

Since the government does not maintain a dollar in gold for every dollar of notes, the question may properly arise how the government is able to redeem them on presentation. The answer involves the whole basis of credit, which is confidence. The people, firmly believing in the integrity of the government, have confidence that it can redeem every note on demand. Consequently, no one presents notes for payment unless he has some special need for gold. They are in very much the same frame of mind as the bank depositor who, hearing that his bank was about to fail, demanded to withdraw his deposits. On being assured that the bank was solvent he merely remarked that if the bank had the money to pay him he did not want it; if it did not, he wanted it at once.

Three kinds of bank notes also circulate widely in the United States, but a detailed notice of them must be deferred to a later chapter.