American monetary history—and certainly its peculiar banking establishments—are both intriguing and mind-boggling.
Here's an account from the late-19th C that I had occasion to read today:
In the mid-1800s, across America's many differing states, there were tons and tons of small banks who all issued various forms of banknotes. Gorton defines the notes thus:
A bank note was a small denomination noninterest-bearing, perpetual, debt obligation of the issuing bank used as a medium of exchange
The central banknote exchange in Philadelphia at the time is fascinating from a monetary point of view, and mostly reminds a modern reader of the flurry of an airport, with booths of banking-like desks offer to buy and sell any number of various different notes—with varying degrees of haircuts/spread taken, often the more exotic and illiquid the currency is.
The quoted segment is also an interesting observation for Gresham's Law type conversations (#738907), where a pristine high-quality note is often considered better money ("good money") than the torn, wrinkled, and well-used note ("bad money") when they're both accepted at par. That's a little bit of a mistake, as I explain in the post, since Gresham's law requires very specific conditions; and there is, in principle, no reason why relative prices couldn't take money quality into account when pricing goods and services.
The assumption there is that brand new and pristine notes are preferred to those falling apart from use.
...but! That doesn't hold in the weird circumstance of ante-bellum America, since notes had counterparty risk in their issuer: Accepting an unknown note in trade exposed the merchant or banker to fraud risks as well.
So, inverting the usual Gresham idea, a half-broken note with signs of usage becomes a safer note to accept than a new-looking, never-used one, since the used note has clearly been wielded by other bankers and merchants before it (and so is probably legit.).
The world of money is fun.