Due to the complete absence of metal for minting coins and tokens in the South during the Civil War, millions of small change notes, most commonly 10, 25 and 50 cent denominations were printed on whatever paper was available. In some cases in Virginia, the same note could be found on 4 different types of paper. Sometimes, the backs of obsolete or surplus $1.00 to $100.00 were used. Fluvanna County small denomination notes can be found on the backs of Richmond Bank Drafts, Phoenix Bank of Richmond and even the Commercial Bank of Washington City. The same situation occurred Georgia as Dave observed.

I think that southern fractionals, when printed on dollar denominated notes. were usually printed on sheets of earlier designs that had been withdrawn from use years before or from failed /closed banks. Demand for fractional notes seemed to remain undiminished certainly through at least 1864.

First, I don’t know the answer nor am I an “expert” on the subject but I won’t let that stop me from commenting.

In my experience of looking through various dealers' Georgia obsoletes I can’t recall seeing any one-sided notes that were overprinted on their reverse of a previous issue of a bank or company that were for anything but scrip or low denominations. So the question seems more “Why did they need these low denominations?” The obvious answer is that there wasn’t any low denomination coinage available in the south during the civil war.

As for the inflation, it is my understanding that the CSA tried to prevent inflation by buying up previous issues of their currency and issuing large bonds payable “later.” This reduced the money supply and the rate of inflation a bit. Inflation is caused two ways or a combination of the two ways. One is by having an actual shortage of goods so their value goes up relative to the demand. That certainly happened in the south. Another way is by having way too much currency in circulating causing people to spend more than they would if less currency were available.

For example, on a personal level if you won the Lotto for $100,000,000 would you clip coupons and read your Consumer Reports for the best buys? Probably not, you would just buy stuff and not argue the price. In a real sense each dollar you won would be worth less, in your mind, than the dollars you earned previously so you might treat each dollar perhaps like a cent previously. On a regional basis, there also wasn’t enough paper available to flood the market with currency as evidence by the reuse of previous issues of banks or companies. [As an aside, I keep adding companies because some of the reused paper was from companies. For example, Palace Mills, Columbus, GA issues include overprints on Pigeon Roost Mining Company, Dahlonega, GA.] In addition, with the agricultural south, necessity being the mother of invention, there was lots of bartering that replaced the use of hard currency.

Finally, why would a bank reuse its own high dollar currency for scrip? I think the answer is that there wasn’t much demand for their higher denominations since, I suspect, most people didn’t trust the bank’s paper versus hard currency and hard goods. However, the merchants still needed change for what merchandise they did have for sale and the bank filled that need with scrip to stay relevant in an era of real instability and uncertainty.

The reuse of large denomination sheets to print small denomination notes during the Civil war was discussed in my Florida Paper Money, An Illustrated History 1817-1934:

"On November 16, 1863 the Governor reported to the legislature: It was early discovered that there were too many large bills in circulation, and that there was a great demand for notes of small denomination, particularly for fractional parts of a dollar. ... In lieu therefore of $50,000 in bills of the denomination of one hundred dollars, I had that amount of blanks in fractional parts of a dollar engraved."

Many examples of this, including the backs of bonds, were illustrated in an I article I wrote, Recycling Paper Money in Florida, in the Winter 1996 issue of FUN-Topics.