Final answer:
The Confederacy financed its Civil War efforts through initial donations, the sale of war bonds, and ultimately by printing fiat money, which caused significant inflation.
Step-by-step explanation:
The Confederacy faced significant financial challenges during the Civil War and resorted to several measures to finance the supply of equipment and other necessities for its army. With limited resources, the Confederate government initially received some funds through donations from Southern states and from the sale of war bonds, which were quickly bought due to patriotic sentiment. However, subsequent bond issues were less successful, leading to a shortfall in needed revenue for the war effort. To manage this, the Confederate Congress authorized the issuance of treasury notes or paper currency, but resisted making them legal tender, which meant citizens were not obliged to accept them. Over time, the government began to rely heavily on printing fiat money to finance over 60 percent of its war efforts, as loans and taxation proved insufficient. This decision led to significant inflation and economic hardship for the Confederacy, a choice made out of necessity according to historian James M. McPherson.