$ 1,000 bill , which was phased out in 1970 .
Courtesy of The Joe I . Herbstman Memorial Collection of American Finance transferred into a book-entry system . By 1970 , nearly half of the outstanding marketable debt was in book-entry form . Wall Street and the Fed never looked back . The decade saw the precipitous rise of bookentry securities . The last bearer Treasury Bill was issued in 1977 , but the end of paper T-Bills 40 years ago did nothing to dampen the demand for these bonds .
By December 1980 , the government reported $ 216 billion on the books in outstanding Treasury Bills , with an average interest rate of 12.8 %. At the same time period a decade later , the total outstanding tab for these securities had reached $ 527 billion , averaging a rate of 7.6 %. And , as with nearly all things debt-related , time is a financial fertilizer . As of May 2017 , the total value of outstanding T-Bills stood at $ 1.74 trillion , with a daily trading volume of around $ 100 billion .
The Treasury Note
The Treasury Note traces its origins to the War of 1812 . The US government needed to raise additional revenue , but there was a problem . The idea of a Hamiltonian central bank had proved unconvincing for many in Congress . Although the Bank of the United States ( BUS ) proved to be successful in its operations , which included acting as the fiscal agent of the government , political opposition to it was intense . And when the bank ’ s first 20-year charter expired in 1811 , it was not renewed .
The timing could not have been worse , as America would be at war with Great Britain a year later .
The government ’ s coffers were insufficient to sustain the conflict , so Treasury Secretary Albert Gallatin proposed a series of interest and non-interest bearing notes to raise needed revenue . ( The final cost of the war would total some $ 158 million .)
Issued from 1812 – 1815 , these notes were redeemable as payment for government duties and taxes . While they were not technically legal tender , they served a de facto role as America ’ s first circulating currency , as merchants and individuals used them in that capacity . Although the low denomination notes were noninterest bearing instruments , they were exchangeable for a 7 % stock at the government ’ s discretion . The success of the War of 1812 notes provided a foundation for later innovations in American finance : federally-issued paper currency and shortterm hybrid debt certificates .
Treasury Notes also aided the government during the Panic of 1837 . Once again , political stubbornness had left the federal government with limited options to address a financial crisis . Despite the lessons learned from the War of 1812 , Andrew Jackson was determined to kill off the Second BUS , which had its 20-year charter expiring in 1836 . One-year Treasury Notes helped the government through the panic and subsequent financial depression of 1840 . But the issuance of these notes was not without controversy , as again their usage came seemingly close to a federal paper currency ( which was not yet authorized by Congress ).
Interest-bearing and compound interest-bearing Treasury Notes would play an important role in financing the Civil War . The hybrid debt-currency nature of these instruments was an important feature to the Treasury . As legal tender , the notes would serve as currency , easing the pressure on specie payments from the government ’ s coffers . But the interest-bearing features of these issues meant that investors would withdraw many notes from circulation until their redemption dates , combating the inflationary effects of the Treasury printing paper money .
In the 20th century , the Treasury Note would come to be the Treasury ’ s shorterterm coupon debt instrument . ( The T-Bill was a zero-coupon security .) No longer a usable form of legal tender , the T-Note was a traditional bond . In 1919 , with the recent end of the Great War , the Treasury issued a fifth Liberty Loan . Known as “ Victory Bonds ,” these four-year securities were Treasury Notes , raising some $ 4.5 billion to pay for the war ’ s expenses . A search of the 1919 Monthly Financial Statement of the United States shows notes for the first time under the category of “ Interest-bearing Debt .”
T-Notes were issued throughout the 20th century , serving an important function in the debt issuance of the federal
34 FINANCIAL HISTORY | Fall 2017 | www . MoAF . org