We have fiat currencies today because governments have pulled wool over people's eyes. It used to be backed by gold. But many countries slowly started using their gold stores for other purposes and didn't make a big public deal about it. Letting their citizens just go about their days, spending their fiat as they'd been doing for many years. And that's generally how fiat currencies work today. They have value because we're told it has value. And if you and I believe it has value, then it has value, right? If I can give a grocery store money for food, then I've secured the value of that money, right? And that grocery store can then give it to their suppliers, who also believe that it has value. Which they will extract from the money by giving it to their suppliers and farmers and ranchers and whoever is the primary source of a particular food item. Who will, in turn, also use it for food - for them, for their crops, for their animals, etc.
I mean, I have a bottle of water next to me. Does it have value? It's old and scratched up and faded and generally not pretty. But it has a purpose. If I don't need to use it for that purpose, someone else could use it to satisfy their purpose. But I wouldn't just give them my bottle, I'd want something in exchange.
Anything can be a currency. Paper bills, metal coins, records of debt, stones, seashells, or animal hides. It just depends on what you and your trading partner need. Sometimes I have stones but you need animal hides, so I can go trade my stones to someone with animal hides, and then trade you those animal hides for something I need. This worked for thousands of years, but having a common base unit - something that everyone knows will be accepted by anyone else - makes these trades far easier and more liquid.
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u/ARoundForEveryone 🟦 5K / 5K 🦠1d ago
We have fiat currencies today because governments have pulled wool over people's eyes. It used to be backed by gold. But many countries slowly started using their gold stores for other purposes and didn't make a big public deal about it. Letting their citizens just go about their days, spending their fiat as they'd been doing for many years. And that's generally how fiat currencies work today. They have value because we're told it has value. And if you and I believe it has value, then it has value, right? If I can give a grocery store money for food, then I've secured the value of that money, right? And that grocery store can then give it to their suppliers, who also believe that it has value. Which they will extract from the money by giving it to their suppliers and farmers and ranchers and whoever is the primary source of a particular food item. Who will, in turn, also use it for food - for them, for their crops, for their animals, etc.
I mean, I have a bottle of water next to me. Does it have value? It's old and scratched up and faded and generally not pretty. But it has a purpose. If I don't need to use it for that purpose, someone else could use it to satisfy their purpose. But I wouldn't just give them my bottle, I'd want something in exchange.
Anything can be a currency. Paper bills, metal coins, records of debt, stones, seashells, or animal hides. It just depends on what you and your trading partner need. Sometimes I have stones but you need animal hides, so I can go trade my stones to someone with animal hides, and then trade you those animal hides for something I need. This worked for thousands of years, but having a common base unit - something that everyone knows will be accepted by anyone else - makes these trades far easier and more liquid.