History -  Catching Counterfeiters: 

Prior to the 20th century, money in the United States came in an amazing of different forms. The federal government made little effort to adopt a standardized currency. Until the Civil War, the United States Mint concentrated its efforts on manufacturing gold and silver coins. Government paper currency was limited to "fractional currency" (denominations less than a dollar), Treasury notes, and postal currency valid for the redemption of postage stamps, but which was also used as tender.

From Harper's Weekly: "Printing the Queer" - Before the Secret Service was created in 1865, the Treasury Department relied upon the U.S. Marshals Service to pursue counterfeiters on a national basis.

During the Civil War, the government introduced "greenbacks," the first national paper currency. Private banknotes and gold and silver coins continued to circulate, creating a confusing plethora of monies. Individual banks issued their own currency, called banknotes, in all denominations. Banknotes were only as solid as the banks which issued them.

Since few banks of the period were actually sound. this paper currency varied in true value. The situation worsened considerably when President Jackson effectively destroyed the domination of the Second Bank of the United States in
the early 1830s. Banks sprouted across the country, each issuing its own currency, each competing for business, and none regulated or held to standard practices.

Americans took their chances dealing with these banks, for they had no insurance for their deposits, no government control over how the banks did their business.  The frequent recessions and depressions of the period wiped out many fortunes, large and small, leaving in their wake a profound distrust of bankers and banks, banknotes and paper currency. Gold and silver alone retained their true value and people tended to hoard these precious metals as much as possible.

Counterfeiters found their paradise. Over a thousand banks issued their own notes, a cornucopia of choices for anyone who wanted to forge his own currency. By the 1860s, an estimated one-third of the currency in circulation was counterfeit. Retailers subscribed to weekly papers showing drawings of the latest counterfeits, much like, in the late 20th century, store clerks checked lists of credit cards for bad numbers.

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