Creating Currency through the National Bank Act of 1864

This article was written by Phin Upham

One of the driving factors in the creation of our national currency was the National Bank Act of 1864. The legislation is actually composed of two acts, and they established several important precedents for our current financial system. The two acts dissolved the idea of a state bank issued currency, which ultimately helped early entrepreneurs conduct business between states.

The initial act was part of President Lincoln’s broader plan to fund the federal government throughout the Civil War. Lincoln used his money to finance the war against the Confederacy through the purchase of federal bonds and state bank issued currency of the time. This initial attempt failed, giving way to the true National Bank Act of 1864.

The rule created so-called “Greenbacks” and established the notes as the nation’s currency. The act also created a new Office of the Comptroller of the Currency, which was a part of the Department of Treasury.

The First National Bank of Philadelphia was the first bank to apply for a charter under the new legislation, but it was not the first bank to operate under the new rules. That honor goes to The First National Bank of Davenport.

In order to finalize the state bank issued notes, a subsequent act was passed in 1865. This legislation made it possible to tax notes from state banks starting in 1866. This forced all non-federal currency from common circulation, and created a new demand for deposit accounts.


About the Author: Phin Upham is an investor at a family office/hedgefund, where he focuses on special situation illiquid investing. Before this position, Phin Upham was working at Morgan Stanley in the Media & Technology group. You may contact Phin on his Phin Upham website