Impressions Create Everything.


The second type of money is fiat money, which does not require backing by a physical commodity. Instead, the value of fiat currencies is set by supply and demand and people's faith in its worth. Fiat money developed because gold was a scarce resource, and rapidly growing economies growing couldn't always mine enough to back their currency supply requirements.3


For a booming economy, the need for gold to give money value is extremely inefficient, especially when its value is really created by people's perceptions.



Fiat money becomes the token of people's perception of worth, the basis for why money is created. An economy that is growing is apparently succeeding in producing other things that are valuable to itself and other economies. The stronger the economy, the stronger its money will be perceived (and sought after) and vice versa. However, people's perceptions must be supported by an economy that can produce the products and services that people want.


For example, in 1971, the U.S. dollar was taken off the gold standard—the dollar was no longer redeemable in gold, and the price of gold was no longer fixed to any dollar amount.5 This meant that it was now possible to create more paper money than there was gold to back it; the health of the U.S. economy backed the dollar's value. If the economy stalls, the value of the U.S. dollar will drop both domestically through inflation and internationally through currency exchange rates. The implosion of the U.S. economy would plunge the world into a financial dark age, so many other countries and entities are working tirelessly to ensure that never happens.


Today, the value of money (not just the dollar, but most currencies) is decided purely by its purchasing power, as dictated by inflation. That is why simply printing new money will not create wealth for a country. Money is created by a kind of a perpetual interaction between real, tangible things, our desire for them, and our abstract faith in what has value. Money is valuable because we want it, but we want it only because it can get us a desired product or service.

Comments

Post a Comment

Popular posts from this blog

BGs | SBLCs | LCs | DLCs | PBs | BANK DRAFT ARE GENUINELY BEING LEASED AND SOLD AT LOW RATES.  GENUINE BANK GUARANTEE (BG) AND STANDBY LETTER OF CREDIT (SBLC)  for lease and sale at the lowest rates available with other financial instruments such as MTN, CD, DLC. I am a direct Mandate to a genuinely renowned Investment Finance Company offering Cash & Asset Backed Financial Instruments on Lease and Sale at the best rates and with the most feasible procedures. Instruments offered can be put in all forms of trade and can be monetized or discounted for direct funding. For Inquiry Kindly Contact: Email: jasongavin44@gmail.com Telephone: + 44 7452 390049 Twitter: @JasonGa58390383
Read more
  Money as a Medium of Exchange: Before the development of a medium of exchange  that is, money—people would barter to obtain the goods and services they needed. Two individuals, each possessing some goods the other wanted, would enter into an agreement to trade. Early forms of bartering, however, do not provide the transferability and divisibility that makes trading efficient. For instance, if someone has cows but needs bananas, they must find someone who not only has bananas but also the desire for meat. What if that individual finds someone who has the need for meat but no bananas and can only offer potatoes? To get meat, that person must find someone who has bananas and wants potatoes, and so on. The lack of transferability of bartering for goods is tiring, confusing, and inefficient. But that is not where the problems end; even if the person finds someone with whom to trade meat for bananas, they may not consider a bunch of bananas to be worth a whole cow. Such a trade requires co
Read more
How Is Money Measured? But exactly how much money is out there, and what forms does it take? Economists and investors ask this question to determine whether there is inflation or deflation. Money is separated into three categories so that it is more discernible for measurement purposes: M1  – This category of money includes all physical denominations of coins and currency; demand deposits, which are checking accounts and NOW accounts; and travelers' checks. This category of money is the narrowest of the three, and is essentially the money used to buy things and make payments (see the "active money" section below). M2  – With broader criteria, this category adds all the money found in M1 to all time-related deposits, savings accounts deposits, and non-institutional money market funds. This category represents money that can be readily transferred into cash. M3  – The broadest class of money, M3 combines all money found in the M2 definition and adds to it all large time dep
Read more