Why do we have different equivalents of a “dollar”? Who decided that different currencies would exist and would be worth what they are? Why can’t we have one currency used globally?
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When coins were first invented, they were basically the local king’s guarantee that a little chunk of precious metal was that metal, and weighed what it was supposed to weigh. If you disagreed with that, you could deal with the king, who usually could bring an army to the discussion.
Every little city-state or king had their own seal, their own weight. You could do coin exchanges by literally weighing the coins against each other and trading them, so that only matters a little.
There’s a a big problem hiding here, though: there’s no way for the king to control how much the coins are worth in terms of what you get. If someone finds a ton of precious metal, or if the number of purchases goes down, then the coins end up worth much less. This is inflation. It makes it better to spend than to save, to get the most goods for your money, within limits. If the city state does very well in industry and trade, but doesn’t get enough metal to keep up, the coins end up worth too much to actually use. This is deflation, and it makes it better to save money on hopes of it getting more later. Both of these are bad for the people trying to use the money day-to-day.
Eventually, people realized that the king, or other kind of government’s guarantee of value was more important than the metal in the coin. So they started issuing alternative forms, including paper bills, where you could go to the government and ask them to give you the metal at the going rate. This did require some control of how much metal the government owns vs the number of bills in circulation, but gave them the ability to have banks put bills into circulation and take them out of circulation to control how much money there was vs the amount of buying and selling going on, to keep the value of that money relatively stable. The amount of metal the government gave you in exchange for the paper bill determined how much different bills were worth relative to each other. These are all still tightly linked to who owns the metal, and how much you get from the bills, though.
Eventually, governments stopped using metal to back up those paper bills, and the bank accounts and so on. This leaves people free to trade money kinds against each other, and the metal-to-money ratio to change. The value of the money is linked to all the buying and selling that goes on with that money. It gets very difficult to understand around this point, and it scares some people very much that they can’t go get the metal. Sometimes, the value in goods vs money do things that are very unintuitive, and this can also be scary to see happen. The value of money to a person and the way that the money moves in and around the country or world are related, but they aren’t quite the same, and different people want to see different things happen at both those levels. And thaaaat, friends is the entire art of economics and about half of politics, and we launch out of the realm of ELI5 into Opinion.
(Edit: couple small errors, and finished the last paragraph.)
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