Lincoln Signs the First Legal Tender Act
The beginning of 1862 found the Union unable to redeem its Demand Notes, which it was using to pay its soldiers, and the value of the notes began to deteriorate.
This immediate threat spurred Congress to action. Previously, the Constitution had been interpreted as not granting the government the power to issue a paper currency, but on February 25, 1862 President Lincoln signed the First Legal Tender Act which authorized the issuance of United States Notes as a Legal Tender. Initially, the emission was limited to $150,000,000 total face value between the new Legal Tender Notes and the existing Demand Notes. The Act also called for the new notes to be used to replace the Demand Notes as soon as practical. The Demand Notes had been issued in denominations of $5, $10 and $20 and these were replaced by United States Notes nearly identical in appearance on the obverse. In addition, notes of entirely new design were introduced in denominations of $50, $100, $500 and $1000. The Demand Notes' printed promise of payment "On Demand" was removed and the statement "This Note is a Legal Tender" was added.
United States Notes (characterized by a red seal and serial number) were the first national currency, authorized by the Legal Tender Act of 1862 and began circulating during the Civil War. The Treasury Department issued these notes directly into circulation, and they are obligations of the United States Government. The issuance of United States Notes is subject to limitations established by Congress. It established a statutory limitation of $300 million on the amount of United States Notes authorized to be outstanding and in circulation. While this was a significant figure in Civil War days, it is now a very small fraction of the total currency in circulation in the United States.