how is the value of banknotes guaranteed?
In: 0
It could be pegged to the value of a stable commodity (gold). In thay case, your paper money is technically, if not effectively, redeemable for solid gold. This is quite rare now. The USA came off the gold standard in the 70s.
The alternative is called ‘fiat’ currency (roughly translated as ‘because it is said to be so’). This means that the value of the currency is backed up by the government who issues it. It relies on people’s confidence in the strength of the economy.
Latest Answers