Just as the Revolutionary War prompted the Continental Congress to issue paper currency, the financing of the Civil War provided the catalyst for the continuing evolution of U.S. currency. In 1861, the U.S. Treasury issued its first paper currency since the Continentals--Demand notes. They were printed in $5, $10, and $20 denominations, redeemable in coin on demand.
Between 1861 and 1865, the Confederacy issued currency backed by cotton to millions of southerners, gambling that a Confederate victory would ensure the currency's value. Meanwhile, enterprising Northerners printed Confederate money and circulated it in the South. This led to one of the greatest inflationary periods in America, particularly in the South.