What was established by the Legal Tender Act of 1862?

The Legal Tender Act of 1862 played a crucial role in the financial landscape of the United States during the Civil War. It authorized the issuance of paper money, which came to be known as "greenbacks." This was a significant development as the country faced immense financial strain due to the war.

The introduction of these greenbacks allowed the federal government to create a more flexible money supply and helped finance the war effort without relying solely on gold and silver reserves. By declaring these notes as legal tender, the government mandated that they be accepted for all debts, thereby stabilizing the economy in a time of turmoil. This shift marked a departure from a purely metallic currency system and laid the groundwork for modern fiat currency systems where money is not backed by physical commodities.

The other options relate to different aspects of economic policy but do not accurately reflect the primary purpose and outcome of the Legal Tender Act. While the gold standard was significant in the broader context of U.S. currency history, it was not directly established by this act. The regulation of state banks and the establishment of a national income tax came later and are not connected to the purpose of the Legal Tender Act.