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A Demand Note is a type of United States paper money that was issued between
August 1861 and April 1862 during the American Civil War in denominations
of 5, 10, and 20 US$. Demand Notes were the first type of paper money issued
by the United States in the sense that they were the first in the series of
emissions which has continuously achieved wide circulation down to the
present day. The U.S. government placed the Demand Notes into circulation by
using them to pay expenses incurred during the Civil War including the salaries
of its workers and military personnel.
Because of the distinctive green ink on their reverse, and because state-
chartered bank and Confederate notes of the day typically had blank reverse, the
Demand Notes were nicknamed "greenbacks", a name later inherited by Legal
Tender and Federal Reserve Notes. The obverse of the Demand Notes contained
familiar elements such as the images of a bald eagle, Abraham Lincoln, and
Alexander Hamilton, though the portraits used on Demand Notes are different
from the ones seen on U.S. currency today.
When Demand Notes were discontinued, their successors, the Legal Tender
Notes, could not be used to pay import duties, a large part of the U.S. federal tax
base at the time, and thus Demand Notes took precedence. As a result, most
Demand Notes were redeemed, though the few remaining Demand Notes are
the oldest valid currency in the United States today.
Treasury Notes and early United States paper money
Between the adoption of the United States Constitution and the civil war, the
United States government did not issue paper money as it is known today, but
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on many occasions it did issue short term debt called Treasury Notes. The
Demand Notes were a transitional issue connecting these Treasury Notes to
modern paper money. The Demand Notes had been intended to function as
money but were authorized within the legal framework of Treasury Notes since
the U.S. was not generally assumed to have the authority to issue banknotes at
that time.
The Continental Congress had issued Continental dollars between 1775 and
1779 to help finance the American Revolution. The paper Continental dollars
nominally entitled the bearer to an equivalent amount of Spanish milled dollars
but were never redeemed in silver and lost 99% of their value by 1790 despite
the American victory. With the fate of the Continentals in mind, the Founding
Fathers embedded in the constitution no provision for a paper currency, and the
constitution explicitly prohibits states from making anything but gold or silver
legal tender. As a result, the pre-civil war circulation of banknotes in the United
States consisted of private issues, including issues by private federally chartered
banks such as the First and the Second Bank of the United States.
While the constitution did not explicitly grant the power to issue paper
currency, it did grant the power to borrow money. Treasury Notes, as a form of
debt, were an innovation to help bridge federal financing gaps when the
government encountered difficulty selling a sufficient amount of long term
bonds, or loan "stock". Treasury Notes were first employed during the War of
1812 and were issued irregularly up through the civil war. Characteristically the
issues were not extensive and the "polite fiction" was always maintained that
Treasury Notes did not serve as money when, in fact, to a limited extent they
did. These notes usually bore interest, their value varied with market conditions,
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and they rapidly disappeared from the financial system after the crisis associated
with their issuance had ended.
Among the several issues of Treasury Notes, of special note are the "Small
Treasury Notes" of 1815 which, like the Demand Notes, did not bear interest
and were intended to circulate as currency – and thus are also candidates for
"the first U.S. paper money". However only $3,392,994 were issued, and these
were rapidly exchanged for bonds. In witness to the limited circulation achieved
by these notes, only two issued uncancelled examples of the Small Treasury
Notes are known today vs. almost 1000 examples of the Demand Notes.
Pre-issuance
Federal finances had not yet recovered from the Panic of 1857 when the election
of President Lincoln, in 1860, made it even more difficult for the federal
government to raise money in the bond market due to the increased threat of
Southern secession and a possible war. At the outbreak of the civil war the
Union was depending upon hand-to-mouth borrowing to meet expenses and
with the beginning of hostilities at Fort Sumter in April 1861 the burden of
funding the war effort and paying employees, including soldiers in the field,
offered no small challenge.
One response from Congress was the Act of July 17, 1861, which allowed for
$250,000,000 to be borrowed on the credit of the United States. Of this sum, up
to $50,000,000 was authorized as non-interest bearing Treasury Notes, payable
upon demand, in denominations less than fifty dollars and not less than ten