History of Bank Notes



History of Bank Notes

By Dave Sevart

Prior to the Civil War, no paper currency was issued by the United States government. Paper money was issued by thousands of different banks, companies, merchants, and municipalities. Many of the banks failed or were fraudulent, and their notes became worthless. This is why they are sometimes called "broken" banknotes. Others were redeemed and cancelled. Many were legitimate and survived past the 1860's, and continued to redeem their notes as they were presented back to the bank. During the mid-1860's the Federal government started to issue paper money and these “Broken Bank” notes were taken out of circulation. One type of new Federal currency was the national banknotes.

If a bank wanted to continue to circulate its own currency, it would have to obtain a charter from the Federal government, and also obtain their notes from the government. Some obsolete banknote issuers became national banks and still survive, and all their notes, obsolete and nationals, were still redeemable. Many merchants, towns, cities, and counties also issued notes in denominations less than $1, and these are called "scrip".
In 1863, at the height of the Civil War, the National Currency Act was signed into law by President Lincoln. The dual aim of the legislation was to provide a ready and steady market for the sale of United States bonds issued to finance Federal involvement in the Civil War, and to create a sound bank currency to replace the generally insecure issues of the state banks then in circulation. One of the results of this legislation was National Bank Notes, which were issued by more than 14,000 banks, large and small, until 1935.

The system was relatively straightforward: For every $90 worth of U.S. Bonds that a bank would buy, the government would give $100 worth of National Bank Notes to issue, each printed with the name of the bank on its front. Upon the approval of its organization as a National Bank, the Comptroller would issue each bank a unique charter number, designating its place on the roster of all such banks. Charter No. 1 was issued to The First National Bank of Philadelphia in June, 1863. Charter No. 14320, the highest to appear on a National Bank Note, was issued in early 1935 to The Liberty National Bank & Trust Company, Louisville, Ky.
There were three 20-year "charters" in a variety of denominations, each of which had a different design. Among the most popular bills from the first charter, 1863 to 1882, during which 179 regional banks went national, is the Lazy 2, a $2 bill that features a very large, sideways, numeral two on the front of the note. The reverse side of a $20 bill from that period depicts Pocahontas being baptized; a $50 shows Washington crossing the Delaware.

The bills of the second charter, 1882 to 1902, are a little bit smaller than those of the first. Instead of acquiring these bills for their vignettes and engravings, collectors differentiate second-charter notes based on the type of back a bill has. The Brown Backs were, as the name suggests, brown, with the bank’s charter number printed in the center. Other bills had Date Backs (whose dates did not always correspond precisely to the duration of the second charter), while a third type had Value Backs, in which the value of the bill was spelled out in capital letters.

By the time of the third charter, 1902 to 1929, the bills began to look more like the money we are familiar with up until just a few years ago, when the design of U.S currency changed for the first time in decades. For example, five-dollar bills from this period bear an engraving of the Lincoln Memorial, as they do today. The program of National Bank Notes was discontinued in 1935 due to the failure of many of the nation’s smaller banks during the Great Depression.
In the 72 years of their issue to more than 14,000 “home town” banks across the United States, the  $17 billion worth of National Bank Notes issued between December, 1863, and May, 1935, represent a widely collected series of United States paper money.

National Bank Notes were authorized in denominations of $1, $2, $3, $5, $10, $20, $50, $100, $500, $1,000, and $10,000. No notes of the $3 or $10,000 denomination were printed. No surviving $1,000 Nationals are known, although the Treasury still reports 21 outstanding.
Kansas issued national bank notes from 400 banks in 206 different towns. Many survived the depression and are still in business today.
There are several factors that determine the value of a National banknote, such as:

  • Bank name on the note
  • One bank towns
  • Condition of bank note
  • Denomination of the note
  • Census of remaining bank notes ---(such as the number of notes known to exist)