When paper money was issued in America, it became the first authorized paper money to be issued by a government in the Western world.
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 failed. Some of the issuers successfully liquidated and others converted into national banks.
The tremendous demand for 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 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.