Greenbacks were the paper money printed and issued by the U.S. government during the American Civil War (1861–65). The financial demands of the war quickly depleted the nation's supply of specie (gold and silver). In response the government passed the Legal Tender Act of 1862, which suspended specie payments and provided for the issue of paper money. About $430 million in notes were issued. The notes were legal tender—money that had to be accepted in payment of any debt. Because the bills were supported only by the government's promise to pay, it was somewhat derisively observed that the bills were backed only by the green ink they were printed with on one side. (Hence the name greenbacks.) The value of the notes depended on the peoples' confidence in the U.S. government and its future ability to convert the currency to coin. As the fighting between the Union and the Confederacy raged, confidence in government fluctuated: When the Union suffered defeat, the value of the greenbacks dropped—one time to as low as 35 cents on the dollar.
Greenbacks remained in circulation after the fighting ended; they finally regained their full value in 1878. After the financial crisis in 1873, many people— particularly western farmers—clamored for the government to issue more. Advocates of the monetary system formed the Greenback Party, which was active in U.S. politics between 1876 and 1884. The party believed that by putting more greenbacks into circulation, the U.S. government would make it easier for debts to be paid and prices would go up—resulting in prosperity. At the end of the twentieth century, the system of paper money remained based on the government's issue of notes (greenbacks), which was made necessary by the Civil War.
See also: Confederate dollars, Free Silver, Gold Standard, Greenback Party
GREENBACKS, the popular name for the U.S. notes issued during the Civil War as legal tender for all debts except tariff duties and interest on the public debt. They served as the standard of value in ordinary commercial transactions after their issue in 1862. The $450 million in greenbacks that was authorized was later permanently reduced to $346,681,016. Although heavily depreciated during the Civil War, greenbacks were much favored by rural proponents of inflationary monetary policies, who rallied for their continuance in the late 1860s and 1870s. Organized as the Greenback Party, the proponents succeeded in postponing the resumption of specie payments until the Resumption Act of 1875, which by 1879had returned the greenback to a value on par with metallic currency.
Ritter, Gretchen. Goldbugs and Greenbacks. Cambridge: Cambridge University Press, 1997.
Unger, Irwin. The Greenback Era. Princeton, N.J.: Princeton University Press, 1964.