Obsolete And Emergency Currencies


THE paper currency that was issued by the Colonies became so depreciated in value during the Revolutionary War, as a result of the inability to honor it by payment in specie, that at the close of the war its value was a matter of much doubt. Redemption of the colonial currency by the Federal Government became a lively political question. For several years it was an unsettled question as to whether the Federal Government would assume the obligation. Congress finally provided that, at a stipulated rate under par, it would be receivable in payment for United States bond subscriptions, but only until December 31, 1797. After that date it was made no longer acceptable.

Issues of paper currency were not indulged in at all by the Federal Government until after the Civil War began. As previously explained, the necessities of the Civil War were the cause back of the change in policy.


By the acts of July 17 and August 5, 1861, the first paper money of the United States was issued. Under that authority $50,000,000 was issued and $10,000,000 additional was authorized by the act of February 12, 1862. The act provided for reissue up to December 31, 1862. The notes were payable in gold on demand and were receivable for all public dues. All but $3,350,000 was redeemed by July 1, 1863. The amount that had not been presented for redemption June 1, 1931, was $53,012.50. It is valid currency and will be honored on presentation, but during the period from July 1, 1916, to June 1, 1931, but $140 of it had been presented for redemption.


Specie payment was suspended January 1, 1862, and gold coin and silver coin immediately disappeared from circulation. It became so difficult to procure change to conduct small business transactions that due bills, postage stamps, and purchase tickets were, of necessity, resorted to by merchants. Congress provided for postage stamps and postal currency to meet the difficulty, and finally provided fractional currency in denominations the same as the subsidiary and minor coins, to the amount of $50,000,000. However, $49,102,660.27 was the maximum in fractional currency that was ever actually put in circulation. The denominations ranged from 3 to 50 cents. When presented for redemption it was replaced by like issues, but a great amount of it has never been presented. On June 1, 1931, $15,239,282.46 was still outstanding. Of that amount, $32,000 was definitely known to have been destroyed and $13,218,000.45 is the estimate of the amount in addition that has been destroyed. But $17,661.03 has been presented for redemption since July 1, 1916, and but $1,230.41 has been redeemed during the past year.

The fractional currency is a form of fiat money that stands on the same basis as the greenback. Like the greenback, it is guaranteed by the gold reserve, and is, in fact, the same class of currency. It differs only in denomination.


The scarcity of specie and paper currency during the Civil War caused small-denomination Treasury bonds and Treasury notes to pass from hand to hand in business dealings.

The so-called compound 6 per cent interest-bearing notes and the one- and two-year notes of 1863 under the act of March 3, 1863, were passed freely from hand to hand in lieu of currency. Of the 6 per cent notes, $156,570 in face value has never been presented for redemption and $56,700 of the one- and two-year notes is still outstanding.

By the act of July 17, 1861, Treasury notes bearing 7.3 per cent interest were issued in denominations as low as $10, and $9,300 of that issue is still outstanding. Under the acts of June 30, 1864, and March 3, 1865, additional small-denomination 7.3 per cent interest-bearing notes were issued. Of that issue, $119,400 has never been presented for redemption.

Those four issues of interest-bearing notes, although much used as currency, were, in reality, not money. They were simply used by the public as substitutes for paper currency.


The necessity for relieving the shortage of currency in time of money stringency caused Congress to provide under the act of May 30, 1908, for the issue of $500,000,000 in paper money when business conditions made it appear advantageous to do so. The determination of the necessity for issuing it was made discretionary with the Secretary of the Treasury.

As previously explained in the description of the four classes of currency in current circulation, prior to the passage of the Federal Reserve Act, there was no elasticity to the currency. Sufficient currency for normal needs was insufficient during crop-movement times, and at times when extreme money stringency existed the amount of currency in existence was clearly far less than was needed. It was, however, evident that a means should exist for contraction as well as for expansion, if additional currency should be authorized. The act of May 30, 1908, was designed to meet the necessity.

It provided for additional national-bank notes to be issued up to 30 per cent of the unimpaired capital and surplus of an applying national bank upon the deposit of state, municipal, or county bonds to be accepted at 90 per cent of their market value or other securities, including commercial paper, at 75 per cent of its cash value. Currency carrying the name of the depositing bank was authorized to be provided the bank in amounts up to those percentages of deposited security values.

As it was intended that such currency issues should be only to meet emergency conditions and that the currency should contract when the emergency ceased, a tax of 5 per cent per annum was laid on all that was issued. That tax rate was to be applied during the first month the currency was issued and to be increased by 1 per cent each succeeding month until the rate reached 10 per cent.

Provision was made for the issue of that class of currency direct to a national bank upon the deposit of Federal, state, city, town, or county bonds of the United States, but the acceptance of commercial paper as security was only authorized when tendered through national banking associations for which the act made provision.

Associations were formed so that practically the entire country was covered by them. The associated banks put themselves in a position to procure the emergency currency if occasion should warrant applying for it. There was no necessity for issuing the emergency currency until the World War began. An aggregate of $381,592,145 was issued during the period immediately after the World War broke out. The heavy tax caused the prompt deposit of the cash to take up the emergency currency. The Government there-upon assumed the obligation to redeem it and the security was returned to the depositing bank, as is the procedure when a national bank ceases to carry its regular circulation. It is now almost wholly retired.


The Federal Reserve Act accords the same privilege to the Federal reserve banks in the issue of circulating notes as is accorded to national banks, except that the Federal reserve bank note issues are not limited to the amount of the stock of the Federal reserve bank that issues them.

Issues of Federal reserve bank notes began December 15, 1915, and the final issue took place October 17, 1923. The maximum in circulation at any one time was $270,522,800. As the several Federal reserve banks discontinued issuing that class of notes they remitted lawful money to the Treasury to retire the notes outstanding. The Government thereupon assumed the obligation of redeeming them when they are presented. The aggregate of those outstanding June 1, 1931, was $2,947,301.