A Brief History of U.S. Obsolete Bank Notes and Scrip
A Brief History of U.S. Obsolete Bank Notes and Scrip
U.S. Obsolete currency generally refers to state and local bank notes and scrip issued between the opening of the Bank of North America in 1782 and 1866 when the U.S. Government levied a 10% tax on the bank notes of state and private banks, effectively forcing them to retire their currency.
Obsolete Bank Notes
The Bank of North America was the first legitimate commercial bank in the United States. It was chartered by the Continental Congress on December 31, 1781 and opened for business in Philadelphia on January 7, 1782. The bank was founded by Robert Morris and other prominent financiers, and its first transactions were loans to the cash-strapped Continental Congress. The bank issued specie-backed bank notes, and proved to be successful, eventually converting to a National Bank in 1864.
The U.S. Constitution, ratified in 1788, left the power to incorporate and regulate banks with the States. By 1800 every major U.S. port city had at least one state-chartered bank serving the local community. By 1820, there were over 300 commercial banks in operation, with that number growing to 900 by 1840 and over 1500 by 1860.
Between 1782 and 1866, Obsolete Bank Notes were issued by over 2,500 different state and private banks with over 30,000 different designs in many denominations.
Free Banking
In 1837, Michigan became the first state to pass a Free Banking act. Prior to this time, prospective bankers needed to persuade their state legislature to issue them a bank charter. As a result, charges of political favoritism created resentments against the banks, bankers and politicians. The free banking laws were enacted to provide free entry into the banking system and a bond-secured paper currency.
Fifteen more states enacted free banking laws between 1838 and 1860. 1838: New York and Georgia, 1849: Arkansas, 1850: New Jersey, 1851: Illinois, Maine and Ohio, 1852: Indiana, Rhode Island, Tennessee and Wisconsin, 1853: Florida, 1858: Minnesota and Iowa, 1860: Pennsylvania.
Most of these Free banking states enacted laws modeled on New York's legislation, which was under debate in 1837, and passed into law in 1838. However, the states enacted differing levels of supervision over the banks. Especially in those states with little supervision (such as Michigan), banks often failed, with disastrous results for the people left holding worthless bank notes.
Wildcat Banks
A Wildcat bank refers to an often unauthorized, always undercapitalized bank, located in some out-of-the-way place, where it would be very difficult for anybody to find them to redeem their bank notes. One possible source of the term was the wildcat that appeared on notes of the Catskill Bank of New York, which was a notorious paper money mill. A second possible source could be a reference to the remote location of the bank 'out where the wildcats live'.
As a result of these Wildcat banks issuing a lot of notes, and not redeeming many of them, there are often numerous surviving notes for us to collect!
Counterfeiting
The counterfeiting of bank notes probably began as soon as the first notes were issued. Many early notes used simple designs that were easy to counterfeit. Banks started using more intricate designs to try to deter counterfeiters, which helped, but counterfeiting continued to be an ongoing problem, making it necessary for banks to change their bank note designs often.
Counterfeiting was one of the primary reasons there were over 30,000 different designs of bank notes from over 2,500 banks during the Obsolete Bank Note era.
Books or pamphlets called Counterfeit Detectors contained verbal descriptions and drawings or photos to help identify counterfeit notes. These guides, which had to be reissued often to try to keep up with the counterfeiters, were used by bankers and merchants to help verify the many different bank notes they would come across each day.
Contemporary counterfeits can be collected along with the legitimate bank notes. Sometimes for a bank that had redeemed most of its notes, counterfeits may be the only notes that have survived for us to collect.
Spurious Bank Notes
In addition to counterfeits (that copied the designs of existing legitimate bank notes), some unscrupulous crooks would print bank notes for banks that did not even exist. They would then attempt to pass these notes far away from the supposed location of the bank. These notes were called Spurious bank notes.
Raised and Altered Bank Notes
There are two additional types of fraudulent bank notes:
- Raised notes were genuine bank notes that had been altered to appear to be notes of a higher denomination.
- Altered notes were bank notes (usually worthless notes from a defunct bank) that were altered to appear to be the note of a different (legitimate) bank. For example, the note to the right was a note from the Farmers Bank of Wickford, RI (which failed in 1857) that was altered to appear to be from the Farmers Bank of Lansingburgh, NY.
End of the Obsolete Bank Note Era
On February 25, 1863, in the midst of the Civil War, President Abraham Lincoln signed the National Currency Act, which established the National banking system. Under this system, federally chartered National Banks were required to purchase U.S. government bonds to be deposited with the U.S. Treasury to back the currency (National Bank Notes) issued by the banks.
This provided sorely needed funding for the Civil War, and also provided for a stable national currency to replace the existing bank notes of thousands of state-chartered and private banks, which had often failed, leaving people with worthless bank notes.
In 1866 the U.S. Government levied a 10% tax on the bank notes of state and private banks, effectively forcing them to retire their currency, which ended the Obsolete Bank Note era. Most of these banks converted to National Banks and issued National Bank Notes.
Municipal and Merchant Scrip
Municipal & Merchant Scrip was issued by State, County & City municipalities or private merchants or other businesses. This scrip was not legal tender and was usually issued in denominations less than $1 during times of financial stress (when coins were hoarded and unavailable) to help businesses make change for their transactions. In general, this scrip was only accepted locally. (For information on scrip issued from the Panic of 1873 to the Great Depression of the 1930s, see the Collecting U.S. Depression & Panic Scrip home page).
Sources
- Bowers, Q David. Obsolete Paper Money Issued by Banks in the United States, 1782-1866. Atlanta, GA: Whitman Pub, 2006.
- Haxby, James A. United States Obsolete Bank Notes 1782-1866 (4 volumes) Iola, WI: Krause Publications, 1988.
- Hewitt, R. Shawn A History & Catalog of Minnesota Obsolete Bank Notes & Scrip. New York, NY: R.M. Smythe & Co, 2006.
- Bodenhorn, Howard "Antebellum Banking in the U.S.", EH.net Encyclopedia 2008.