To me it’d seem that the only reason paper money is worth something is because enough people believe it is. And if that’s the case and more can be printed. There’s no rarity really either. I’d love to hear some explanations. Thanks.
In: Economics
Money is used because it is useful to have a universal means of exchange, and governments require taxes to be paid using it. There are also laws giving it special status (legal tender). Inherently its only value is its scarcity. There is nothing in principle that prevents the government from creating as much money as they want by “turning on the printing presses” (or using equivalent electronic means), but when countries have done this in the past, it causes the value of their money to collapse. Recent examples of this are Zimbabwe and Venezuela. The reason money holds its value is because the people who could just “turn on the printing presses” don’t, and we have enough trust in the system of government that we expect that they will continue to manage the printing presses responsibly. Because we have decent period of time where we have gone through political and economic cycles and the managers of the printing presses have behaved responsibly, we have trust that the system will continue to work.
Latest Answers