The Confederate States dollar was first issued just before the outbreak of the American Civil War by the newly formed Confederacy. It was not backed by hard assets, but simply by a promise to pay the bearer after the war, on the prospect of Southern victory and independence. As the Civil War progressed and victory for the South seemed less and less likely, its value declined. After the Confederacy's defeat, its money had no value, and individuals and banks lost large sums.
The first series of Confederate paper money, issued in March 1861, bore interest and had a total circulation of . As the war began to tilt against the Confederates, confidence in the currency diminished, and the government inflated the currency by continuing to print unbacked banknotes. By the end of 1863, the Confederate dollar (or "Greyback", to distinguish it from the then-new "Greenback" paper US dollar, which was likewise put into circulation during the war) was quoted at just six cents in gold, and fell further still.
The Greyback is now a prized collector's item, in its many versions, including those issued by individual states and local banks. The various engravings of leading Confederates, gods and goddesses, trains, ships and slaves on these hastily printed banknotes, sometimes cut with scissors and signed by clerks, continue to stimulate debate among antique dealers, with even some of the counterfeit notes commanding high prices.
Background
The Confederate dollar, often called a "Greyback", was first issued into circulation in April 1861, when the Confederacy was only two months old, and on the eve of the outbreak of the Civil War.
At first, Confederate currency was accepted throughout the South as a medium of exchange with high purchasing power. As the war progressed, confidence in the ultimate success waned, the amount of paper money increased, and their dates of redemption were extended further into the future. Most Confederate currency carried the phrase across the top of the bill: "SIX MONTHS AFTER THE RATIFICATION OF A TREATY OF PEACE BETWEEN THE CONFEDERATE STATES AND THE UNITED STATES" then across the middle, the "CONFEDERATE STATES OF AMERICA WILL PAY [amount of bill] TO BEARER" (or "...WILL PAY TO BEARER [amount of bill]" or "...WILL PAY TO BEARER ON DEMAND [amount of bill]").
As the war progressed, the currency underwent the depreciation and soaring prices characteristic of inflation. For example, when news of the Confederate defeat at Gettysburg reached the public, the Confederate currency depreciated 20%. Confederate President Jefferson Davis asked private citizens to restore the value of the Confederate dollar by mutually agreeing to sell and buy items only at reduced prices. In October 1863, Confederate States Senator Louis Wigfall of Texas said that a Confederate soldier received per month in pay, which was worth the same as had been worth at the beginning of the war. In September 1864, one Confederate dollar was worth the same as three cents of United States currency. People tried to retain their wealth by buying gold to such an extent that, in Richmond, it was impossible to find someone who would sell their gold. On Christmas Day, 1864, the Confederate dollar's worth had decreased to such an extent that a turkey sold for and a ham for . By the war's end, a cake of soap could sell for as much as , and an ordinary suit of clothes was ,700.
Near the end of the war, the currency became practically worthless as a medium of exchange. This was because, for the most part, Confederate currency was bills of credit, as in the Revolutionary War, not secured or backed by any assets. The only two exceptions were in Mississippi, where in 1862 a series of notes were issued with the backing of cotton stored by the state's planters and in Florida, where notes were backed, in theory, by public lands. Just as the currency issued by the Continental Congress was deemed worthless (witness the phrase "not worth a Continental;" and see The Federalist Papers, which also addressed this issue in the run-up to the ratification of the U.S. Constitution) because they were not backed by any hard assets, this too became the case with Confederate currency. Even though gold and silver may have been scarce, some economic historians have suggested that the currency would have retained a relatively material degree of value, and for a longer period of time, had it been backed by hard goods the Confederacy did have, such as cotton or tobacco. When the Confederacy ceased to exist as a political entity at the end of the war, the money lost all value as fiat currency.