How does currency work?
In: 1
Currency is like tokens you get at an arcade.
1. **Creation**: Just like the people who work at the arcade give you tokens, there’s a group of people in each country that make money. In the US, this group is called the Federal Reserve.
2. **Distribution**: The money they make gets sent to banks. Just like when you get tokens from the counter at the arcade, you get money from banks.
3. **Use as a Medium of Exchange**: Now, you can use these tokens, or money, to “play games”, or in the real world, to buy things like toys or ice cream. The amount of tokens each game needs at the arcade is like prices in a store.
4. **Store of Value**: You can save tokens to play a big game later, right? The same way, you can save money to buy something big in the future.
5. **Unit of Account**: Just like you know some games cost more tokens than others, money helps us understand what things cost compared to others.
6. **Digital Currencies and Cryptocurrencies**: Imagine if the arcade had a special kind of token that only works with certain games. That’s kind of like digital money or cryptocurrencies like Bitcoin, which are a different type of money that we use on computers.
Just like you trust that your tokens will let you play games, people need to trust that money will let them buy things. That’s how money works!
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