What led Americans to distrust paper currency?
During the days when the Articles of Confederation was our plan of government, we had serious financial issues. Because there was no unified currency, both the state governments and the federal government printed paper money. Additionally, the federal government didn’t have the power to levy taxes. Thus, money was an issue for the government.
Because the state governments and the federal government were printing money, there was too much money in our economy. This caused inflation as people had the money to buy things, but there weren’t enough goods to meet the demand. As prices rose, the purchasing power of our paper money decreased. As a result, people lost confidence in the value of the paper money. In some places, people stopped accepting paper money as payment for goods and services. They only accepted gold and silver coins because they knew gold and silver had value and would be accepted as payment anywhere.
Printing too much paper money is not a wise economic decision. It leads to inflation and a decrease in the purchasing power of paper money. This, in turn, can cause people to lose confidence in the paper money if inflation is really high.