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This version of NSU News has been archived as of February 28, 2019. To search through archived articles, visit nova.edu/search. To access the new version of NSU News, visit news.nova.edu.
This version of SharkBytes has been archived as of February 28, 2019. To search through archived articles, visit nova.edu/search. To access the new version of SharkBytes, visit sharkbytes.nova.edu.
Recalling The Value Of The Greenback
FORT LAUDERDALE-DAVIE, Fla. – In a recent front-page report on the $2 bill, the Sun Sentinel raised the mystery of why someone would pay many times its value on eBay when they could purchase it at a bank for face value. Several theories were offered, including the belief that the $2 bill will bring good luck.
Timothy A. Canova, J.D.
The answer to this mystery is found in the largely forgotten history of the currency itself. Different kinds of $2 bills have been issued over the decades. United States Notes, known as “greenbacks,” were first issued during the Civil War by President Lincoln’s Treasury and withdrawn from circulation in the 1960s. These are the $2 and $5 bills that trade on eBay for multiples of their face value.
Lincoln turned to greenbacks to avoid high interest rates demanded by big private banks. Instead, the Treasury issued about $450 million in U.S. Notes at no cost to taxpayers. These greenbacks made up about 40 percent of the nation’s money supply during the Civil War and at a time when the government was investing in huge infrastructure projects, including major canals and railroads.
In contrast, Federal Reserve Notes are issued by the 12 privately owned regional Federal Reserve Banks and lent, at interest, to the U.S. government through the sale of Treasury bonds.
Bonds issued by state and local government under the Obama administration’s Buy America Bonds program have yields exceeding 7 percent. At that rate, the borrower will end up repaying as much in interest every 10 years as it originally borrowed in principal. Over the life of a 30-year bond, taxpayers will pay four times for their capital expenditures: once in principal and three times in interest.
In 1999, Ray LaHood, a Republican Congressman who would become President Obama’s first Transportation secretary, introduced a bill that would have authorized the Treasury to make up to $360 billion in interest-free loans ($72 billion a year for five years) to state and local governments for capital investments. The novel feature of the bill was how Treasury would have financed the loans: not from tax revenues, not from borrowing, but from issuing the loans in the form of credits in U.S. Notes.
U.S. Notes could be used for other purposes, from restoring the 2013 budget sequestration cuts to reducing the deficit and paying down outstanding debt. Compared with our present system of public finance, the greenback is just common sense.
About the Author – Timothy A. Canova, J.D., is a professor of law and public finance at Nova Southeastern University’s Shepard Broad Law Center, Fort Lauderdale, Fla.
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