By: History.com Editors

1862

Legal Tender Act passed to help finance the Civil War

Published: November 13, 2009

Last Updated: January 25, 2025

On February 25, 1862, the U.S. Congress passes the Legal Tender Act, authorizing the use of paper notes to pay the government’s bills. This ended the long-standing policy of using only gold or silver in transactions, and it allowed the government to finance the enormously costly Civil War long after its gold and silver reserves were depleted.

How U.S. Currency Was Centralized

In 1838, U.S. Mint branches were opened across the country to fulfill the need for a centralized system of monetary exchange.

Soon after the war began, the federal government began to run low on specie. Several proposals involving the use of bonds were suggested. Finally, Congress began printing money, which the Confederate government had been doing since the beginning of the war. The Legal Tender Act allowed the government to print $150 million in paper money that was not backed by a similar amount of gold and silver. Many bankers and financial experts predicted doom for the economy, as they believed there would be little confidence in the scheme. There were also misgivings in Congress, as many legislators worried about a complete collapse of the nation’s financial infrastructure.

The paper notes, called greenbacks, worked much better than expected. The government was able to pay its bills and, by increasing the money in circulation, the wheels of Northern commerce were greased. The greenbacks were legal tender, which meant that creditors had to accept them at face value. In 1862, Congress also passed an income tax and steep excise taxes, both of which cooled the inflationary pressures created by the greenbacks.

Another legal tender act passed in 1863, and by war’s end nearly a half-billion dollars in greenbacks had been issued. The Legal Tender Act laid the foundation for the creation of a permanent currency in the decades after the Civil War.

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Citation Information

Article title
Legal Tender Act passed to help finance the Civil War
Website Name
History
Date Accessed
March 24, 2025
Publisher
A&E Television Networks
Last Updated
January 25, 2025
Original Published Date
November 13, 2009

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