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I understand the fear. What I don't understand is the actual mechanism that would cause such a thing to occur. I can think of no instance where "confidence" is the driving factor for currency value.
It isn't. It is the loss of confidence in the value of currency that hurts. We have money that holds value because people believe it is valuable. Nothing backs up the dollar other than that belief because it actually has no intrinsic value. If the belief disappears then the money no longer has value or at best has less value. If the money loses value fast enough you have serious inflation and serious inflation has destroyed many an economy. Just look at Brazil half a century ago or look at prewar Germany.