Question

What was the purpose of the Legal Tender Act?

Answer 1

Hint: Legal tender refers to anything accepted by law as a measure to resolve a public or private dues or fulfil a financial obligation, along with tax payments, contracts, and legal fines or damages. On Feb 25,1862, Congress passed the Legal Tender Act and restructured the U.S. monetary system.

Complete answer:
On Feb 25,1862, Congress passed the Legal Tender Act in order to finance the Civil War. Civil War spending created a shortage of coins—the only legal tender at that time.

With the introduction of the Legal Tender Act of 1862, the U.S. monetary system was restructured by the Congress through the establishment of paper notes legal tender. Therefore, creating a national currency for the first time.

In 1862, The 37th Congress (1861–1863) faced a financial crisis, as escalating costs of war rapidly exhausted the Union’s reserves of gold and silver coin, the only legal tender of the U.S. After a lot of debate, Congress sanctioned the issuance of paper U.S. Notes (popularly known as the “greenbacks”), declaring them legitimate money for all payments except interest on public debt and import duties. Intended as an emergency measure, the Act drastically expanded federal power and modified the nation’s monetary standard.

Note: In 1863, another Legal Tender Act was passed, and by the end of the war, nearly a half-billion dollars in greenbacks had been issued. The Legal Tender Act laid the base for the formation of a permanent currency in the decades after the Civil War.