Greenbacks were the bills printed as paper currency by the United States government during the Civil War. They were given that name because the bills were printed with green ink.
The printing of money by the government was seen as a wartime necessity prompted by the great costs of the conflict. And it was controversial.
The objection to paper money was that it wasn't backed by precious metals, but rather by confidence in the issuing institution, the federal government. (One version of origin of the name "greenbacks" is that people said the money was only backed by the green ink on the paper.)
The first greenbacks were printed in 1862, after the passage of the Legal Tender Act, which President Lincoln signed into law on February 26, 1862. The law authorized the printing of $150 million in paper currency.
A second Legal Tender Act, passed in 1863, authorized the issuing of another $300 million in greenbacks.
The Civil War Prompted the Need for Money
The outbreak of the Civil War created a massive financial crisis. The Lincoln administration began recruiting soldiers in 1861, and all the many thousands of troops, of course, had to be paid and equipped. And weapons, everything from bullets to cannon to ironclad warships had to be built in northern factories.
As most Americans did not expect the war to last very long, there didn't seem to be a pressing need to take drastic action. In 1861, Salmon Chase, the secretary of the treasury in Lincoln's administration, issued bonds to pay for the war effort. But when a quick victory began to seem unlikely, other steps needed to be taken.
In August 1861, after the Union defeat at the Battle of Bull Run, and other disappointing engagements, Chase met with New York bankers and proposing issuing bonds to raise money. That still didn't solve the problem, and by the end of 1861 something drastic needed to be done.
The idea of the federal government issuing paper money met with hard resistance. Some people feared, with good reason, that it would create a financial calamity. But after considerable debate, the Legal Tender Act made it through congress and became law.
The Early Greenbacks Appeared in 1862
The new paper money, printed in 1862, was, to the surprise of many, not met with widespread disapproval. On the contrary, the new bills were seen as being more reliable than the previous paper money in circulation, which had typically been issued by local banks.
Historians have noted that the acceptance of the greenbacks signaled a change in thinking. Instead of the value of money being linked to the financial health of individual banks, it was now linked to the concept of faith in the nation itself. So in a sense, having a common currency was something of a patriotic boost during the Civil War.
The new one-dollar bill featured an engraving of the secretary of the treasury, Salmon Chase. An engraving of Alexander Hamilton appeared on denominations of two, five, and 50 dollars. President Abraham Lincoln's image appeared on the ten-dollar bill.
The Confederate Government Also Issued Paper Money
The Confederate States of America, the government of the states which had seceded from the Union, also had severe financial problems. The Confederate government also began issuing paper money.
Confederate money is often regarded as having been worthless because, after all, it was the money of the losing side in the war. But the Confederate currency was also devalued because it was easy to counterfeit.
As was typical during the Civil War, skilled workers and advanced machines tended to be in the North. And that was true of the engravers and high-quality printing presses needed to print currency. As the bills printed in the South tended to be of low quality, it was easier to make facsimiles of them.
One Philadelphia printer and shopkeeper, Samuel Upham, produced a huge amount of fake Confederate bills, which he sold as novelties. Upham's fakes, indistinguishable from the genuine bills, were often purchased to be used on the cotton market, and thus found their way into circulation in the South.
Greenbacks Were Successful
Despite reservations about issuing them, the federal greenbacks were accepted. They became standard currency, and even in the South they were preferred.
The greenbacks solved the problem of financing the war. And a new system of national banks also brought some stability to the nation's finances. However, a controversy arose in the years following the Civil War, as the federal government had promised to eventually convert the greenbacks into gold.
In the 1870s a political party, the Greenback Party, formed around the campaign issue of keeping greenbacks in circulation. The feeling among some Americans, primarily farmers in the west, and was greenbacks provided a better financial system.
On January 2, 1879 the government was to begin converting greenbacks, but few citizens showed up at institutions where they could redeem paper money for gold coins. Over time the paper currency had become, in the public mind, good as gold.