Before the 1860s, Americans mainly used gold and silver coins to pay for things.  Banks could give out paper notes and these could be used as money.  If the bank failed, however, these became worthless.  This system of money worked well for a country like the United States, which had a small government that did not need much money.

When the American Civil War began, however, US President Abraham Lincoln realized that the government would require more money.  Lincoln tried to borrow money from American banks but they soon ran out of it.  The US government decided that it would make a new form of money instead of borrowing it.

As a result, the government issued a limited form of money called “Demand Notes”.  These notes were printed on paper and could be used to pay only for imported goods.  They could also be used to buy gold.  The reverse side of these notes was printed in green ink.  People started calling these notes “greenbacks” as a nickname.  Although these helped the United States government pay for the war, they were still not enough to cover its expenses.

Lincoln had to make an important decision.  He could either make a new form of money across the United States or borrow money from foreign banks.  In early 1862, he asked the government to create a new law and print new paper money called United States Notes.  These were different from Demand Notes because they could be used across the United States to pay for anything.  However, these were also printed with green ink.  These new notes were essential in helping Lincoln win the war by 1864.