Treasury Notes (19th Century)

A Treasury Note is a type of short term debt instrument issued by the United States prior to the creation of the Federal Reserve System in 1913. Without the alternatives offered by a federal paper money or a central bank, the U.S. government relied on these instruments for funding during periods of financial stress such as the War of 1812, the Panic of 1837, and the American Civil War. While the Treasury Notes, as issued, were neither legal tender nor representative money, some issues were used as money in lieu of an official federal paper money. However the motivation behind their issuance was always funding federal expenditures rather than the provision of a circulating medium. These notes typically were hand-signed, of large denomination (at least $50), of large dimension (bigger than private banknotes), bore interest, were payable to the order of the owner (whose name was written on the front of the note), and matured in no more than three years - though some issues lacked one or more of these properties. Often they were receivable at face value by the government in payment of taxes and for purchases of publicly owned land, and thus "might to some extent be regarded as paper money." On many issues the interest rate was chosen to make interest calculations particularly easy, paying either 1, 1½, or 2 cents per day on a $100 note.

Characteristically, the issues were not extensive and, as it has been observed, "the polite fiction was always maintained that Treasury Notes did not serve as money when, in fact, to a limited extent they did." The value of these notes varied, being worth more or less than par as market conditions fluctuated, and they rapidly disappeared from the financial system after the crisis associated with their issuance had ended.

The ante-bellum Treasury Notes did not have legal tender status, but financial innovation during the Civil War caused the term Treasury Note to become associated with legal tender instruments such as the United States Notes introduced in 1862 and the Compound Interest Treasury Notes introduced in 1863. The appearance of these new obligations, together with the changes brought about by the National Banking Act, effectively eliminated most of the uses of the old Treasury Notes as money and the term Certificate of Indebtedness was introduced to apply to new notes which possessed the debt-like aspects of the pre-war Notes. Today the Treasury's short term debt needs are fulfilled by Treasury bills.

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