Open your wallet today and, if you have any “folding money” at all (as opposed to debit and credit cards), you’re looking at Federal Reserve Notes. These are obligations of the United States, printed by the Bureau of Engraving and Printing and issued through the Fed.
From the 1780s into the 1860s—before the modern era of National Banks and, more recently, the Federal Reserve system—chances are the paper money in your wallet would have been issued by individual state-chartered banks. These banks circulated their own legal-tender notes, with the gold and silver in their vaults guaranteeing their redemption . . . in theory.
The system kept American commerce moving, but it had plenty of weak spots and didn’t always work as planned. Tales abound of banks that cranked out much more paper than their hard money could safely capitalize. A run on a shaky bank could make it collapse. Another challenge: Thousands of banks, from small towns to big cities, issued notes in thousands of designs and denominations. It was hard for John Q. Public to keep track of which banks were solid—or even which banks were real. Scoundrels could (and did) create and pass “funny money” drawn on fictitious institutions.
This naturally made some folks nervous. If a customer offered to pay a shopkeeper in Manhattan with a $5 note from the Commercial Bank of Columbus, Mississippi, the merchant might accept it as only $4, in order to mitigate his risk. Publications called bank-note reporters and counterfeit detectors kept retailers and bankers up to date on recently discovered fake bills, and news on bank failures and financial difficulties. They also judged the financial strength of notes—listed by state, town, and bank—and recommended the rates at which each should be discounted.
In the Commonwealth of Kentucky, banking dates to December 16, 1802, and the establishment of the Kentucky Insurance Company in Lexington. A clause in its authorization capitalized the firm at $150,000, with the right to issue paper money. Other banks followed in 1806 and beyond. In 1817 Kentucky chartered 40 new institutions. Then followed two years of statewide economic hardship. Niles’ Weekly Register, the most influential national magazine of the day, warned in October 1819 that only two or three Kentucky banks were safe to deal with. Still, the amount of Kentucky paper money in commerce grew, from $61 million in 1830 to $149 million by 1837. Despite financial failures and some infamous frauds—which every state had its share of—Kentucky chartered many fine banks, including some of the strongest in the Union.
Today, collectors have more than 160 state-chartered Kentucky banks to explore. Studying them offers a history of small towns and big cities across the Commonwealth. They issued some 1,500 types of paper notes from the early 1800s until shortly after the Civil War, when the National Bank system took the place of state-chartered institutions.
Next week we’ll take a look at some of these old-time Kentucky notes and the banks that issued them.
Dennis Tucker, Honorable Order of Kentucky Colonels, is the publisher of Whitman Publishing, a leading producer of storage and display supplies, reference books, and other resources for collectors and hobbyists. He was commissioned a Kentucky Colonel in March 2021 for his career in book publishing and his promotion of the Bluegrass State’s status as an important subject in numismatics. His column “From the Colonel’s Desk” explores the Commonwealth’s rich connections to American coins, tokens, medals, paper money, private currency, and related artifacts.