The most common usage of the term Greenback in the modern economy is as another term to refer to the United States Dollar.

The term Greenback was first used in referring to Demand Notes which were issued by the United States Government from 1861 – 1862. These demand notes were imprinted with a green United States government seal and it was the color of this seal that gave rise to the term Greenback. The first paper notes to be known as Greenbacks were a fiat currency issued during the American civil war. Being a fiat currency, Greenbacks were not backed by gold.

The U.S. Treasury initially released these notes into circulation to meet the costs of the Civil War which had been incurred by the Union side in the conflict. These notes were officially known as United States Notes or alternatively, Legal Tender Notes, and were enacted into law by the First Legal Tender Act of 1862, which was highly controversial, as, prior to this date the Constitution had been interpreted as not granting the government the power to issue paper money. The Act was pushed through and justified on the grounds that it was an emergency war measure.

These Legal Tender Notes were issued from 1862 to 1971 and were in issue for longer than any other United States paper money, though the Act itself was subject to many modifications and the notes themselves have been issued in different versions, including the move from large size notes to the present day small size notes which took place in 1929. This alternative term of Greenback was taken directly from the old demand notes of 1861 – 1862. Contemporary Federal Reserve Notes bear a red seal of the U.S. Treasury, but the nickname for the United States currency of Greenback has endured.

Meanwhile, from 1874 to 1884 there was an American political party known as the Greenback Party which campaigned for the creation of a government issued currency. Once again, it is possible to trace the naming of this political party back to the demand notes issued from 1861 – 1862.