Can someone explain how fiat money works? I’m very bad at economics and reading about it is making my brain hurt. Is money even real?
In: Economics
Fiat money is the natural endpoint of an economic system. /first we had bartering, which was incredibly inconvenient because carrying your goods to market just to trade them for other goods was unnecessarily difficult. So then we moved to representative money, the bills represented something with an agreed upon value. So a bill would say be worth 1 bar of silver, and one could go to the bank and exchange the bill for a bar of silver or vice versa. Fiat money has value because it is believed that is has value, and people believe in that value. The value is also determined by how much money is in circulation, If there’s very few bills in circulation, the value is generally high, if there’s way too many bills in circulation, the value will plummet, So a central bank (In the case of the US the federal reserve) watches the amount in circulation and prints money accordingly, most economists consider a slow steady inflation rate is ideal. This is the reason why governments can’t just “print more money” to pay debts, if they do their currency will enter a state called “hyperinflation” that is the currency becomes essentially worthless. An example is Zimbabwe, wherein the Zimbabwean dollar was reduced to so little value that a 100,000,000,000 note was worth about a third of a cent in USD.
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