Demand Note

A Demand Note is a type of United States paper money that was issued from August 1861 to April 1862 during the American Civil War in denominations of 5, 10, and 20 US$.

Demand Notes were the first issue of paper money by the United States that achieved wide circulation.

The U.S. government placed Demand Notes into circulation by using them to pay expenses incurred during the Civil War including the salaries of its workers and military personnel.

During wars and recessions it issued short term debt called Treasury Notes, but these were not legal tender.

Treasury Notes, as a form of debt, were an innovation to help bridge federal financing gaps when the government encountered difficulty selling a sufficient amount of long term bonds, or loan "stock".

Characteristically the issues were not extensive and the "polite fiction" was always maintained that Treasury Notes did not serve as money when, in fact, to a limited extent they did.

[3] These notes usually bore interest, their value varied with market conditions, and they rapidly disappeared from the financial system after the crisis associated with their issuance had ended.

At the outbreak of the Civil War the Union was depending upon hand-to-mouth borrowing to meet expenses and with the beginning of hostilities at Fort Sumter in April 1861 the burden of funding the war effort and paying employees, including soldiers in the field, offered no small challenge.

The promise to pay specie "on demand" was a new obligation for Treasury Notes (though common on private banknotes) but would spare the cash-strapped treasury the intermediate step of selling an equivalent amount of debt by allowing it to use the notes as a currency to pay creditors directly.

This act also stipulated that prior to December 31, 1862, an individual Demand Note could be re-issued into circulation after it was presented for redemption.

[7] It allowed for Demand Notes to be issued in denominations of not less than $5 and be redeemable through the assistant treasurer's office at St. Louis or the bullion depository in Cincinnati.

[9] In mid-September[10] Secretary Chase issued the following circular to the assistant treasurers to remove all doubt about the monetary status of the new notes: Under the acts of July 19th and August 5th last, Treasury Notes of the denomination of $5, $10, and $20, have been, and will continue to be issued, redeemable in coin on demand at the offices of the assistant treasurer at Boston, New York, Philadelphia, St. Louis, and at the Depository of Cincinnati.

These notes are intended to furnish a current medium of payment, exchange, and remittance, being at all times convertible into coin at the option of holder, at the place where made payable, and everywhere receivable for public dues.

A sufficient amount of coin to redeem these notes promptly on demand will be kept with the depositaries, by whom they are respectively made payable.

This put Demand Notes on par with the value and purchasing power of gold coins and they circulated widely among the public for private transactions.

On December 10 Secretary Chase indicated that war expenditures were far exceeding projections while Federal revenues were falling short.

[14] Then on the 16th, news of the British reaction to the Trent Affair reached New York and the major banks, which had been supplying gold to the government in exchange for seven-thirties Treasury Notes and bonds which they had been in turn reselling, saw the demand for their offerings of Union securities drop precipitously.

[9] The inability of the Union government to redeem these notes for specie "on demand" caused great concern to Congress in early 1862.

After February 4, Secretary Chase authorized John Cisco, Assistant U.S. Treasurer in New York City, to accept Demand Notes for short term deposits at five percent interest – thus making the Demand Notes as good as interest bearing deposits, but with the credit of the government.

The Demand Notes became the unit of account for dollar denominated obligations in place of gold, which had begun to disappear from circulation, having risen to a 1 to 2% premium over paper.

While this debate was on-going the cash needs of the government called and the Act of February 12, 1862, authorized an additional $10,000,000 in Demand Notes.

[12] As early as the second week of May the Demand Notes were being quoted at a premium for sale to importers who used them in place of gold to pay customs duties.

[19] As customs duties averaged $6 to 9 million/month the slow drain of outstanding Demand Notes was tracked in the financial columns.

However, at the time of issue, the "Statue of Freedom" was a work in progress and was not completed until 1862 and was not placed atop the Capitol dome until 1863.

The issuing bank note company was printed in middle of the top border and the phrase "RECEIVABLE IN PAYMENT OF ALL PUBLIC DUES."

[23] Ten dollar Demand Notes feature a portrait of Abraham Lincoln at left and an allegorical figure representing art to the right.

In the top center of the note is a vignette of a bald eagle perched on olive branches with a ribbon stating E PLURIBUS UNUM.

Both the portrait of Lincoln and bald eagle vignette were stock elements used on previous banknotes issued by the American Bank Note Company.

The very middle of the bottom border contains the issuing bank note company, while "RECEIVABLE IN PAYMENT" is to the left and "OF ALL PUBLIC DUES" is to the right of this.

The price and value of a Demand Note depends primarily on its rarity (which location and whether "for the" is handwritten or engraved) and secondarily on its condition.