Specie Payments Suspension And Gold Coin Circulation After 1861 In The Usa?

The shortest explanation I can give is that, in the USA (that is, Federally-controlled areas) during the Civil War and immediately after, there was a two-tiered currency system east of the Front Range of the Rocky Mountains. West of the Front Range (that is, Denver), paper currency hardly circulated at all : indeed, my grandmother, who passed away last year at the age of 101, clearly recalled gold being used in business dealings between her father and fellow California ranchers even after the Gold Reserve Act.

East of the Front Range, most everyday business was done in "greenbacks", that is, Government paper money. Before the outbreak of the Civil War, paper money was all bank issues, many thousands of them, and large, frequently-updated publications with names such as Bank Note Reporter existed to advise you whether you should take a note on an unfamiliar bank or not. It was common to encounter notes issued by banks which had gone out of business, or even completely bogus notes on banks that had never existed at all, and the difficulty of presenting the note of an out-of-town bank for redemption meant that many notes on solvent banks circulated at a discount, compared to specie, when away from their origin points. Across the Southern States, notes drawn on banks in the commercial center of New Orleans circulated at par, because of the good communication facilities of the Mississippi River, and the very strict banking laws of Louisiana, which assured the notes would be redeemed when presented. Because of the word "DIX" engraved prominently on the ten-dollar notes, Louisiana notes were known as "Dixies", and the areas where they predominated were known as "Dixieland".

The outbreak of the Civil War swept away all these private issues overnight. The Federal paper circulated at par with specie, or nearly so, even for quite a while after redemption was suspended, because it was uniformly accepted everywhere.

Now, what of gold (and silver)? Simply put, the balance of trade had to be settled in gold. That is to say, the excess of the value of imports over exports, which was never positive before 1878 (and was particularly negative during the Civil War because of the sudden disappearance of cotton and tobacco exports), had to be paid for in gold, because foreigners had no use for and would not accept paper dollars. It was precisely because of this constant outflow of specie, that gold and silver had always been in short supply, and constant recourse had been made to paper money beginning in the Colonial era.

Customs revenues were collected in gold, which served to retain a small proportion of the product of the mines in the country, but most went overseas. From the import duties, the interest on the Federal debt was paid in gold, but the people who received those payments mostly disposed of the gold for as much of greenbacks as they could get, to merchants who needed it to pay for export balances or import duties.

An interesting discussion.