Home » Greenback

Greenback

« Back to Glossary Index

Greenback is a slang term used for the “Paper U.S. Dollar”, but traders often use it to refer to the USD in forex trading. According to etymology, back in 1861 – 1862, during the American Civil War, the U.S. government issued a currency note printed in green on its back, and since that time, it’s called Greenback.

Understanding Greenbacks

It took half a century to get all foreign coins and competing state currencies out of circulation, but by the early 1800s, the U.S. was ready to try the paper money experiment again. Bank notes had been in circulation for a while, but because banks issued more notes than they had coins to cover, these notes often traded at less than face value.

In the 1860s, the U.S. created over $400 million in legal tender to finance its war against itself. The government had earlier issued bonds to raise capital. However, the war’s timeline depleted its finances.

The idea of issuing paper money was opposed by bankers because it would bring the federal government into markets and could potentially translate to its bankruptcy if the war failed to go in its favor. To prevent such an eventuality, the paper money’s value depended on the health of the individual banks issuing the currency.

They were called greenbacks simply because the backs were printed in green. The government-backed this currency and stated that it could be used to pay back public and private debts. However, despite the government’s backing, they were not exchangeable for gold or silver.