I’ve been reading about old American paper currencies recently and first of all I want to say it’s insanely confusing how many notes they have. Private notes, legal tender notes, demand notes, US notes, treasury notes, holy smokes! ANYWAY: I’ve noticed one thing about Demand Notes. It seems like all the other notes were legal tender except for import duties. Except for the Demand Notes. Can someone please explain to me what was so special about import duties?? Why were so many different paper moneys good for everything EXCEPT import duties? If someone could pitch in and let me know firstly why Demand Notes were like the only paper money that could pay import duties and secondly why were import duties so special compared to literally everything else? Interestingly I learned that because they could be used for import duties Demand Notes traded almost on par with gold. Some smart traders and merchants bought Demand Notes specifically to pay import duties which were otherwise payable only in gold or silver.
Back in the 1860s and 1870s, most types of paper money traded at a discount to gold: At your local bank, you could trade $100 in gold coins for, say, $120 in paper money. (The exact ratio fluctuated quite a bit over time; sometimes it was more like $100 for $200.) So a paper dollar and a gold dollar were quite different things. The government wanted its citizens to accept the paper money, so the government had to accept it *from* the citizens too: if you owed $100 in taxes, you could pay $100 in paper--you didn't have to pay $100 in gold, which would have been more expensive. But import duties weren't generally paid by citizens; they were paid by foreigners who wanted to bring stuff into the country. The government didn't feel the need to be so nice to them. So paper wasn't acceptable for import duties; those had to be paid in gold. That's where the government got most of its gold for years. Anyway, the Demand Notes of 1861 were of course the first paper money issued, so they hit the scene before all of the above had been carefully thought out, and basically just nobody had thought of making the exception for import duties yet. So, as you said, they ended up with this weird status where they were legally more-or-less equivalent to gold, unlike all the other paper money. (A few years later, National Gold Bank Notes were given roughly the same weird status, but on purpose this time.) The really amazing thing happened in the late 1870s, when the government, with its finances now in much better shape after recovering from the Civil War, decided to clear up the confusion of gold dollars vs. paper dollars by announcing that paper dollars could now be freely traded in for gold. Somehow or other it actually worked: the paper money rose in value until it was equal with gold, and the difference no longer mattered very much. Which is why the earlier double system now sounds so complicated and unfamiliar to us.
But in 1861 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. They must be always equivalent to gold, and often and for many purposes more convenient and valuable. 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. And all depositors and collecting officers will receive them, enter them on their books, and pay them to public creditors as money. Large amounts of the notes of small denominations are rapidly being issued and distributed.” It says “redeemable in coin” which means there should be no discount on paper or premium on gold. Why pay a premium on a gold coin if your paper can be redeemed for gold coin? So it seems they were intentionally meant to trade at par and be used for import duties.
Secretary Chase's circular applied to the government. It did not apply to private transactions. They were redeemable in coin at the Treasury offices cited above. The further from these places, the greater the discount. Notice there is no Treasury office in Chicago where they could be redeemed for coin. While the receiver of public money in Chicago had to receive them at par for public dues, he was not required to redeem them for coin.
