I often think about the fact that the objects we use to represent currency have no actual practical utility outside of their representation of “money”. But why did we begin using this system in place of exchanging good and services with one another? At what point did humans see fit that rounded metals and rectangular sheets of paper had an assigned representation of value that could be exchanged for goods and services?
In: Economics
What you’re calling “symbolic currency” is known in economics as *fiat money*. It’s money that has no (or very little) inherent value. This is as opposed to *commodity money* which is something that’s inherently useful. Paper notes are fiat money, while examples of commodity money that have been used in the past are gold, cattle, barley and even the old stereotype of cigarettes being used as money in prison.
Commodity money has a lot of potential drawbacks: indivisibility (you can’t have half a cow), portability (cows are heavy), variations in quality (some cows are better than others), and degrading value over time (cows get old and sick). Fiat money gives us a currency that can be divided however you want, that is easy to carry, that is identical from one unit of currency to the next, and that holds its value.
The catch is that since fiat money is just a promise on a piece of paper, it only works if people trust whoever is making the promise. Traditionally that’s national governments, so the value of the currency depends on how trustworthy that government is perceived to be. Governments that people don’t trust see their currency plummet in value. The Iranian Rial, for instance, has an exchange rate of 42,000 to one US Dollar because there is so much uncertainty and mistrust of the Iranian government.
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