Among the first coins struck by the United States was the Half Dime in 1794. Worth five of the new large cents, the diminutive silver coin served for nearly 80 years as a key piece of small change in the pockets of Americans. In 1866 though, the U.S. Mint introduced a second five-cent coin. One might wonder why this new coin appeared since the Half Dime had already been serving in that role for many years.
The answer goes back to the Civil War. When hostilities commenced in 1861, virtually all precious metal coins disappeared from circulation. Silver and gold were hoarded by citizens of both the North and South, and a severe shortage of circulating coins made conducting daily commerce challenging at best.
A variety of emergency measures were attempted in order to expedite small transactions. The first was the use of encased postage stamps, but a lack of durability and a shortage of stamps doomed this idea from the start. Privately issued scrip (a.k.a. "shinplasters") appeared, but these quickly became filthy and tattered.
The next idea came from General F.E. Spinner, who suggested paper currency of less than one dollar to serve as a medium of exchange. This "Fractional Currency," although not legal tender and not redeemable in silver, nonetheless served some of the nation's commercial needs during much of the war. They deteriorated quickly though, and also earned the nickname "shinplasters."
After the war ended in 1865, many of these notes remained in circulation, and there was insufficient silver to "retire" them at face value. The Act of March 3, 1865 authorized a 3¢ coin made of nickel to redeem the 3-cent notes in circulation.
When the head of the Currency Bureau, Spencer M. Clark used his own image on the new 5-cent note (instead of explorer William Clark, of Lewis and Clark fame) an outraged Congress immediately passed a law in April 1866 retiring the 5-cent notes. However, the lack of silver precluded this as over 113 million of the Fractional 5-cent notes had been produced – more than the entire mintage of half dimes since 1794!
So the Act of May 16, 1866 was passed quickly without debate, authorizing a coin of 77.16 grains made of 75% copper and 25% nickel. The design was similar to James B. Longacre's 2¢ piece of two years earlier, using a shield as a central motif surrounded by a wreath of leaves. Public reaction to the design was not favorable, and it was described as "the ugliest of all known coins" and " a tombstone surmounted by a cross overhung by weeping willows." However, the dirty, worn fractional notes were even less popular, and the Shield Nickel was immediately accepted and the Nickel denomination has remained an important part of our monetary system ever since.