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According to the American Numismatic Association's website, "As the Civil War began, many people started to
stockpile their money, causing a serious shortage of coin currency.
To replace the shortage of coins, people began to use postage
stamps as currency. John Gault came up with the idea to 'encase' the stamps in order to provide extra protection for
them.
"Even with this case around the stamps, the stamps could be taken
out and used as normal postage. US Treasurer Francis E. Spinner recognized that people
were using postage stamps for currency; he recommended to Congress
that a new paper money series should be produced.
"In August of 1862, fractional currency, otherwise known as postage
currency, was developed. The design for the postage currency was
based off the design of 5-cent and 10-cent stamps. This form of
money was printed in 5-cent, 10-cent, 25-cent and 50-cent
denominations. Postage currency was short-lived: It existed from
August 1862 until May 1863 and was replaced by fractional currency.
Fractional currency, which was used until 1876, was not only a
different design and size, making them easier to distinguish, but
it was also difficult to counterfeit."
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