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Andrew Jackson was a "hard money" guy. He saw "real money" as gold and silver, not ink on paper. To legitimize this judgment, Jackson decreed that all Federal purchases must be made in gold and silver. He also embarked on a crusade -- for it was religious -- to abolish the Second Bank of the United States. His fellow Jacksonian Democrat, Oliver Wolcott Jr., allowed the First Bank's charter to expire in 1795.
But the wheels of commerce demand a universally accepted, convenient, and anonymous medium of exchange. In the absence of a Federal currency, private institutions filled the void. Antebellum banks issued their own notes. And while the period was riddled with wildcat banks that were willing to give you worthless paper in exchange for gold, most private banks backed their paper with precious metal. They were the currency of the era.
When the economy was humming, Banknotes were an essential component of Antebellum commerce, a dynamic made possible, ironically, by hard-money guys who hated paper currency. Modern economies are constrained by the costs of storing, securing, insuring, and moving large amounts of metal. A more convenient store of value was necessary, hence banknotes. Sure, they were paper, but they were backed by metal. You could exchange one for a gold or silver coin on demand.
What could go wrong?
Americans were moving West long before Horace Greeley implored them to do so. The 1830s were characterized by Western migration and a speculative land bubble financed with credit. When note holders were no longer convinced their notes were backed by gold, they visited these banks and demanded silver and gold in exchange for notes. It was the Panic of 1837.
Banknotes were short-term promises: "You can exchange these things at any time for silver or gold!" However, the promise was only as good as its backing assets. That broke down when banks lent reserves to land speculators. "Oh, we got your money, it's just credited to Sketchy Green's account right now." The promise was for gold, not a share of Sketchy's loan.
In financial terms, banknotes were a runnable liability, a short-term promise, vulnerable to backing asset mismatches, without a lender of last resort. The Second Bank of the United States was closed, and the Federal Reserve was not established for decades. When trust breaks down, creditors panic.
Which brings us to a future irony, "stable" coins. These are crypto assets backed by bonds and other liquidity assets. Hey, man, the issuer has to make something from this exchange. They're stable as long as the value of bonds backs the outstanding coins one-to-one. But what happens if there's a run on bonds? Or does the issuer seek higher yields through riskier investments? You get the Panic of 202x.
Whether it's 19th-century banknotes, or 1970s money market funds, or mid-naughts repo windows, or 2020s crypto wrappers, they're all runnable liabilities: different names, same shit, folks.