I was on a lovely vacation in New York and went to the Rochester Museum. Apparently they dug up an old time capsule from the 1800s and displayed the objects for all to see.
Included were several different bills of various denominations printed by local banks to Rochester. I know, of course, that in the South during the confederacy they printed their own money, and even many states printed their own money. But it had never occured to me that this was a widespread practice in all the states.
Were these bills I saw actual legal tender at one point? If so, when did this practice stop? I understand why, given that you’d never know what was legal and what wasn’t – it’d be too easy to counterfeit.
Lilacs, I have no idea, but thought I’d suggest asking the museum itself - they ought to have that information. Otherwise, either the city or state should. I’ve never heard of a city printing money like that - sounds interesting. Good luck with your search for the truth!
At that time money was still precious metal. A private bank might issue bills that promised to pay the bearer on demand the sum in gold, but the actual value behind were the reserves of the bank, unlike today when currency is not backed by bank reserves, but by the total production in the economy.
I don’t know if the banks were legally required to keep enough reserves to cover all the notes they had issued, or if they hoped that not all the people who had those bills walked in to exchange them for gold or silver, allowing them to print more dollars in bills than they had in precious metal at stock, but I doubt the bills themselves were legal tender.
According to the Secret Service, more than 7000 types of bills were put into circulation.
After the National Bank Act of 1863, banks chartered by the government could issue their own bank notes.
Only the federal government can issue legal tender. State bank notes were not, but were widely used, although subject to discounting. The notes created by the National Banks after the Legal Tender Act of 1862 were legal tender.
Schnitte. I’m afraid that NO banks issued notes backed by precious metals before 1862. I won’t be amazed if you could find one or two, but it just didn’t happen. Notes were issued without regulation. And thousands of those banks went bust before the US Government stepped in in 1862.
And, as an added point, counterfeits were rampant in the pre-1862 era. I’d estimate that counterfeits existed on over 25% of the banks that issued notes prior to 1850. In many cases, counterfeits are more common than genuine notes from the issuing bank!
I’m afraid my browser is acting up. That wasn’t all that I posted.
The missing piece was something along the lines of
"Private banks were issuing banknotes in the 1810’s. They were issued willy-nilly, and were backed by nothing. They could trade at GREAT discounts, with good reason. It’s not for nothing that we, in the coin business, call the private banknotes issued before 1862, broken banknotes. They went bust, sometimes before they opened their doors.
National Banks, after 1863, could issue their own notes.
Well, kinda. They had to meet Fed requirements. It wasn’t up to the individual banks. And they were printed by the Feds for the individual banks. It was heavily regulated. These notes were backed by the US. Even if a bank went bust, the government would redeem them. (I think I’m correct.).
Even if this provision only applies to the material official coins had to be made of, and not to paper money private banks were printing, it shows that in the mind of people at that time, money was mainly gold or silver, not an abstract thing backed by a nation’s economy and people’s trust in the bill’s value. In order to avoid inflation, there had to be some mechanism that prevented bills from being issued at huge amounts without any control, and since metal reserves cannot be increased freely, backing bills with precious metals did fine. There had been hyperinflations caused by unregulated bills without proper backing before, eg John Law’s bank or the assignate system, so I guess 19th century people would have felt a bit nervous about a currency without any backing. Today’s uncovered monies work well because nowadays knowledge about value and the way economies work is much deeper.
Yep! The collector value varies, from $10-$20 for a common note, to many hundreds for a scarce note. We have in our coin store, at any one time, hundreds of “broken banknotes.” Most are priced $10-$50. Many people buy them to represent a sample of monetary history of their hometown.
Schnitte added
In the minds of people in the first half of the 19th century in the US, you accepted any form of payment you could get your hands on. Chickens, Spanish silver coins, silver coins from any country. You took these early paper notes at your peril. They were discounted based on how far from the issuing bank you were, on whether they were State obligations, etc. I’m resonalby certain that few were backed by gold and silver. Perhaps you can give a cite to argue oppositely.
If you had quoted the next paragraph, you would discover
Yes, the banks were required to redeem their notes in gold an silver. But, like today, a bank doesn’t need to have cash in the vault to redeem every obligation it has outstanding on that day. It is only required to have a percent. And that percentage can be quite low.
Interesting statistics from that excellent site you found(which I was unfamiliam with) are:
Yipes! Imagine your hometown, and one out of every six banks would close their door within a year.
You *were[/i correct, in that these early notes were backed by gold and silver. They just weren’t backed in full. Only a percentage was necessary.
