About Paper Money

---

Pre-federal paper money

When paper money was issued in America, it became the first authorized paper money to be issued by a government in the Western world.

Colonial currency

The Massachusetts Bay Colony financed a military expedition to Canada in 1690 by issuing bills of credit. Other military campaigns were financed by other Colonies in a similar way.

Revolutionary War state issues

The states also issued money during the American Revolution to cover their governmental and military expenditures.

Some of these notes carried messages freighted with propaganda, like the Maryland issue of July 25, 1775, which depicted George III trampling on the Magna Charta while setting fire to an American city, and American Liberty trampling on slavery while backed by a large army.

Continental Currency

Beginning in the middle of 1775, the Continental Congress issued paper money with which to purchase war supplies from foreign countries. The Congress asked the states to redeem the currency, but most states were preoccupied with the need to support their own military activities; consequently, taxes were neglected.

The English forbade the circulation of the money in areas they occupied and attempted to undermine public confidence in it in other areas, often counterfeiting the money.

By 1780, economic circumstances had combined to reduce Continental Currency to one-fortieth of its original face value and the Continental Congress ceased printing it.

1812 interest-bearing notes

When the War of 1812 began, the U.S. government again found itself being forced to borrow money. In 1812, Congress began issuing Treasury notes to cover short-term loans. Five series of these notes were authorized for issue during the war, between 1812 and 1815, in denominations ranging from $3 to $1,000. The notes were not legal tender, but were receivable for all public dues and payable to public creditors. All notes under $100 were payable to the bearer on demand. The $5 notes did not bear interest.

Obsolete notes

Between 1800 and 1865, during periods when the need for a medium of exchange exceeded the amounts of available specie, numerous banks and companies began printing their own paper currency. Although states were constitutionally forbidden to issue their own money, a large number of state-chartered banks circumvented this problem by issuing bank notes as private entities, which were not expressly restrained by the Constitution.

Although commonly called "broken-bank notes," not all banks that issued this currency "went broke" or failed. Some of the issuers successfully liquidated and others converted into national banks.

The tremendous demand for paper currency created by the Civil War eventually exceeded the production capacities of the private banking system and the governments of both the North and South began to print national currency. The end of paper currency production in the private sector was hastened by steep taxes levied by the federal government on private emissions.

Before the private banking era was over, bank notes had been produced by such diverse concerns as railroads, insurance companies, mining companies and pharmacies.