What is a 'Greenback'

A greenback is a slang term for U.S. paper dollars. Greenbacks got their name from their color, however, in the mid-1800s, "greenback" was a negative term. During this time, the Continental Congress did not have taxing authority. As a result, the greenbacks did not have a secure financial backing and banks were reluctant to give customers the full value of the dollar.

BREAKING DOWN 'Greenback'

It took half a century to get all the 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 coin 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. These 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. 

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 is his 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.

Today, the term greenback is an anecdotal term used by foreign exchange traders for the U.S. dollar.

 

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