What Is a Greenback?
A greenback is a slang term for U.S. paper dollars. The term originated during the mid-1860s, when these notes were printed in green ink. Congress had limited taxing authority, and used paper currency to help finance the civil war.
The word "greenback" was a negative term because these notes did not have secure financial backing and banks were reluctant to give customers the full value of the dollar.
- Greenback is a slang term for U.S. dollars.
- The first greenbacks were printed to finance the civil war and were called as such because their backs were printed in green.
- Because they were not fully backed by gold, greenbacks lost value and caused inflation in the northern economy.
- The first greenbacks were called demand notes, and used to pay for salaries and government expenses in 1861-2.
- These were later replaced in the Legal Tender Act of 1862, which authorized the paper notes that would eventually become the official currency.
It took half a century to get all foreign coins and competing state currencies out of circulation, but by the early 1800s, the U.S. was ready to try the paper money experiment again. Bank notes had been in circulation for a while, but because banks issued more notes than they had coins to cover, these notes often traded at less than face value.
In the 1860s, the U.S. created over $400 million in legal tender to finance its war against itself. The government had earlier issued bonds to raise capital. However, the war's timeline depleted its finances.
The idea of issuing paper money was opposed by bankers because it would bring the federal government into markets and could potentially translate to its bankruptcy if the war failed to go in its favor. To prevent such an eventuality, the paper money's value depended on the health of the individual banks issuing the currency.
They were called greenbacks simply because the backs were printed in green. The government backed this currency and stated that it could be used to pay back public and private debts. However, despite the government backing, they were not exchangeable for gold or silver.
Today, the term greenback is an anecdotal term used by foreign exchange traders for the U.S. dollar.
Demand Notes vs. Paper Notes
Greenbacks came in two forms; demand notes and U.S. paper notes. Demand notes were issued in 1861 and 1862 to pay for salaries and other government expenses during the civil war. In February of 1862, the Legal Tender Act saw the government issue paper notes, which would eventually become the official currency of the U.S. as demand notes were phased out.
During this period the value fluctuated according to the North's success or failure at certain stages in the war. However, due to the size of the issue—$400 million—the value of greenbacks against gold steadily declined.
According to H. W. Brand's book Greenback Planet: How the Dollar Conquered the World and Threatened Civilization as We Know It, the value of the greenback had a temporary recovery in value after the battle of Gettysburg before plummeting to a value of 258 greenback to 100 gold (its lowest point) in 1864. When the war ended in 1865, the value of the greenback recovered to 150 greenback to 100 gold.
Demand notes were not legal tender, meaning that private parties could refuse them as payment. Banks varied in their willingness to accept the paper notes.
Greenbacks are reported to have funded 15% of the war's costs. But the rise in their value also increased the cost of everyday goods and supplies—inflation was 14% in 1862 and 25% in 1863 and 1864.
Correction—Feb. 26, 2022: An earlier version of this article incorrectly identified the U.S. Congress by the name of its predecessor, the Continental Congress.