Pre-issuance
Federal finances had not yet recovered from the Panic of 1857 when the election of President Lincoln in 1860 made it even more difficult for the Federal government to raise money in the bond market due to the increased threat of Southern secession and a possible war. At the outbreak of the Civil War the Union was depending upon hand-to-mouth borrowing to meet expenses and with the beginning of hostilities at Fort Sumter in April 1861 the burden of funding the war effort and paying employees, including soldiers in the field, offered no small challenge.
One response from Congress was the Act of July 17, 1861 which allowed for $250,000,000 to be borrowed on the credit of the United States. Of this sum, up to $50,000,000 was authorized as non-interest bearing Treasury Notes, payable upon demand, in denominations less than fifty dollars and not less than ten dollars. These were called Demand Notes to distinguish them from the interest-bearing Treasury Notes in existence at the time.
The promise to pay specie "on demand" was a new obligation for Treasury Notes (though common on private banknotes) but would spare the cash-strapped Treasury the intermediate step of selling an equivalent amount of debt by allowing it to use the notes as a currency to pay creditors directly. The notes were to be redeemable through the Assistant Treasurers' offices at Philadelphia, Boston, and New York. They were to be hand signed by the First or Second Comptroller of Currency or the Register of the Treasury; they were also supposed to be counter-signed by any other treasury officials designated by the Secretary of the Treasury. These signature provisions would later be altered several times. This act also stipulated that prior to December 31, 1862, an individual Demand Note could be re-issued into circulation after it was presented for redemption.
Just before they were to be released, the Act of August 5, 1861 stipulated several changes to the issuance of Demand Notes. It allowed for Demand Notes to be issued in denominations of not less than $5 and be redeemable through the Assistant Treasurer's office at St. Louis or the bullion depository in Cincinnati. This act also stated that the Treasurer of the United States and Register of the Treasury or any treasury official appointed by the Secretary of the Treasury should sign the notes. Under this act, Demand Notes did not need to carry the Seal of the U.S. Treasury. Importantly, this act also granted a traditional privilege of Treasury Notes to the Demand Notes in that they were to be receivable in payment of all public dues, a privilege which was to figure prominently in their eventual disposition.
Because the Bureau of Engraving and Printing did not exist at the time, the American Bank Note Company and National Bank Note Company were contracted to create Demand Notes. Both companies were prominent printers of banknotes for private and state-chartered banks throughout the country. Most likely, the American Bank Note Company engraved the printing plates for $5 and $10 notes while the National Bank Note Company engraved the printing plates for the $20 notes. All of the Demand Notes were printed by the American Bank Note Company. As designed, they were of the same size, and in appearance closely resembled banknotes.
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