The term “greenback” refers to the US dollar and has historical significance from the Civil War era. The green color of the ink on Demand Notes led to the name. The Legal Tender Act allowed for the issuance of non-convertible Legal Tender Notes, paving the way for modern currency. The Greenback Labor Party called for a return to greenback issuing and regulation of private banks. The gold standard was abandoned in 1971, and Federal Reserve Notes replaced legal tender notes, still using green ink.
The term “greenback” is a slang word for the United States Federal Reserve Note, commonly referred to as the US dollar (USD). Greenbacks also have a historical connotation, however, referring to the debate over economic policy during the Civil War era. The name comes from the green color of the ink used on Demand Notes, issued by the United States government from late 1861 to early 1862.
Origins of the US dollar
During the American Civil War, the debate over the greenback and the gold standard came to a head as the US government struggled to pay debts acquired by union military operations. At the time, demand notes had to be convertible into gold coins “on demand,” which was a problem for the government.
On February 25, 1862, the Legal Tender Act was passed, allowing the Secretary of the Treasury to issue Legal Tender Notes, which looked very similar to the Demand Notes they replaced, only they were not convertible into money. A few days later, the US Treasury authorized the issuance of $150 million dollars of legal tender notes, which paved the way for modern currency. A few months later, on August 29, 1862, the first modern currency was produced when the head of the Federal Bureau and five clerks printed paper notes in the basement of the United States Treasury building.
Banks and bankers originally despised the new greenbacks. At the time of initial circulation, people used both gold dollars and green dollars. By 1867, over $350 million dollars in greenbacks were making their way to the United States. Some confusion arose when coin-backed demand notes collided with new greenbacks in the domestic market.
Coin-backed currency
Legal tender “greenbacks” were not backed by currency until Republican President Rutherford B. Hayes endorsed the Species Recovery Act of 1875 in 1875. After the Civil War, creditors were still clamoring for backed currency from coins and the United States reverted to the gold standard in 1879. Some Americans were furious with the decision and formed the Greenback Labor Party, which called for a return to greenback issuing and the regulation of some companies such as private banks which they feared would redefined the value of the currency.
Federal Reserve Notes
The history of the greenback came full circle when Republican President Richard Nixon abandoned the gold standard in 1971 by preventing foreign countries from exchanging gold for US dollars. At that time, legal tender notes were replaced by Federal Reserve Notes, or what is now used as paper money. This paper money continued the tradition of using green inks, thus retaining the “greenback” moniker. Federal Reserve Notes underwent a redesign starting in 2003, and as a result, only the $20 note still uses green as its primary color.
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