Before the gold standard was dropped, it was relatively easy to understand where money got its value.
Money represented a certain proportion of gold in a country’s National Reserve. The money could be cashed in for gold, a very physical and tangible item. That all makes sense.
But we don’t use that anymore. So isn’t the money just paper? I don’t see how this system makes sense anymore.
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The money has value because people believe that it has value and it will continue to do so. This basically means people believe they can hold on to their dollars, and trade them in at a later date without worrying about losing too much value.
The moment people stop believing this, the money stops being valuable (so people would trade dollars for other currencies like euros, and the price of the dollar drops because everyone is selling).
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