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<p>[QUOTE=&quot;Numbers, post: 8205296, member: 11668&quot;]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.&nbsp; (The exact ratio fluctuated quite a bit over time; sometimes it was more like $100 for $200.)&nbsp; So a paper dollar and a gold dollar were quite different things.</p><p><br /></p><p>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&#039;t have to pay $100 in gold, which would have been more expensive.</p><p><br /></p><p>But import duties weren&#039;t generally paid by citizens; they were paid by foreigners who wanted to bring stuff into the country.&nbsp; The government didn&#039;t feel the need to be so nice to them.&nbsp; So paper wasn&#039;t acceptable for import duties; those had to be paid in gold.&nbsp; That&#039;s where the government got most of its gold for years.</p><p><br /></p><p>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.&nbsp; 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.&nbsp; (A few years later, National Gold Bank Notes were given roughly the same weird status, but on purpose this time.)</p><p><br /></p><p>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.&nbsp; 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.&nbsp; Which is why the earlier double system now sounds so complicated and unfamiliar to us.[/QUOTE]</p><p><br /></p>

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