In response to these problems, [the Confederate] Congress came to rely increasingly on the resource it had created in March: Treasury notes. Paper money had several advantages. It didn’t infringe on the sovereignty of the states. It provided a way to avoid taxes and to compensate for the Confederacy’s lack of capital, at least temporarily. And it spared the South the more painful task of building a sound financing structure — a task that might require difficult decisions about the Confederate system’s shortcomings.
The value these notes generated couldn’t be sustained forever, though. As their quantity grew, so would inflation. As paper came to shoulder the bulk of the Confederacy’s costs, its inevitable depreciation greatly undermined the Southern effort. The war couldn’t be funded on faith alone. It required real revenue, something the deliberately decentralized Confederacy wasn’t designed to deliver.