The problem with the paper money issued by private banks in the nineteenth century was that if the issuing bank failed, the money was worthless.

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Quizplus · Accepted Answer

This is correct. Since the paper money was not backed by gold or any other valuable commodity, if the issuing bank failed, the paper money became worthless. This led to many instances of bank runs and financial panics in the 19th century. It wasn't until the establishment of the Federal Reserve System in 1913 that the US government began regulating and backing the nation's currency.

The Problem with the Paper Money Issued by Private Banks