Era 02 · 1862 — 1913

Greenbacks & the Fed

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Decade-by-decade institution-building

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Before 1862 the United States had no federal currency. State-chartered banks issued their own notes; over 7,000 different note designs circulated by the Civil War. The war forced the federal government to create a national currency for the first time, and the panics of the late 19th century forced it to create a central bank to backstop that currency. Two laws passed in 1862 and 1863, and the Federal Reserve Act of 1913, are the institutional foundation that the SEC, the FDIC, and every later regulator was built on top of.

Events in this era

Feb 25, 1862

Legal Tender Act authorizes greenbacks

On February 25, 1862, Congress passed the first Legal Tender Act, authorizing $150 million in 'United States Notes' — the first federal paper currency in American history. Treasury Secretary Salmon Chase had argued for the bill in the face of an empty Treasury and a Civil War whose outlays were running at $1.5 million per day. The notes were called 'greenbacks' for the color of their reverse side. They were not redeemable in gold or silver; they were legal tender by federal law alone. Total greenback issuance grew to roughly $450 million by 1864. The currency persisted as fiat money for fourteen years before the United States resumed specie payments in 1879.

First federal fiat currency in US history

Feb 25, 1863

National Banking Act

Exactly one year after authorizing greenbacks, Congress passed the National Banking Act, creating a system of federally chartered banks empowered to issue uniform 'national bank notes' backed by Treasury bonds. The act also created the Office of the Comptroller of the Currency, the first federal bank regulator. Before 1863, banking had been entirely a state-by-state matter, with thousands of different bank notes of varying credibility circulating. After 1863, a uniform national currency emerged, and bank failures could be addressed by a federal authority for the first time. The act remains the legal basis for federal bank chartering in the United States, with the OCC still operating today.

First federal bank regulator; uniform US currency

Dec 23, 1913

Federal Reserve Act

On December 23, 1913, President Woodrow Wilson signed the Federal Reserve Act, creating a US central bank fifty years after the country had explicitly rejected one. The Panic of 1907, which J.P. Morgan had ended through private coordination from his library, had made clear the US could not safely operate without a lender of last resort. The Fed's design was a political compromise: twelve regional Reserve Banks (so no single city dominated), private member-bank ownership (to limit federal political control), and a Board of Governors in Washington (to limit private capture). The compromise has survived for over a century, with the Fed's actual powers expanding substantially each time it has had to confront a crisis the framers did not anticipate.

US central bank created; 50-year political deadlock broken

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