December 30, 1861 — US banks suspended specie payments today, halting payments in gold or silver coins for paper currency called notes or bills). As a result, Americans could no longer convert bank notes into coins.
Government responded by passing the Legal Tender Act (1862), issuing $150 million in national notes called greenbacks. However, bank notes (paper bills issued by state banks) accounted for most of the currency in circulation.
The following year, Congress passed the National Bank Act of 1863, which was designed to create a national banking system, float federal war loans, and establish a national currency. The goal was to help resolve the financial crisis that emerged during the early days of the American Civil War (1861–1865). The fight with the South was expensive and no effective tax program had been drawn up to finance it.
Words of Wisdom
Every side of a coin has another side.