Do you sometimes wonder why we value a piece of paper as worth $100, 500 euros, or more? I often do as I travel to countries with double digits inflation rates, or when I see places like Zimbabwe where people deal with skyrocketing inflation, and until a few years ago, $100 trillion banknotes. When do you decide that the printed money is not worth what it says anymore?
The folks at Buddy Loans have put together an infographic explaining where money comes from and why we value it. Until only 40 years ago, the printed money always had a back up in gold, meaning you were able to go to the Central Bank on any day, and claim the according weight in gold for all your savings. That stopped in 1971 in the U.S. when president Nixon cancelled the convertibility of the dollar to gold. So now the currencies are floating, and only a portion of the bills on the market could be exchanged for actual gold.
Let’s just hope people keep trusting the currencies, otherwise many countries would face a similar fate as Zimbabwe.
As the infographic says, money was needed to facilitate the exchanges between people. You now have a mean of selling your goods for money, and buying the goods you want with that money, instead of having to find someone who needs exactly what you are selling, and is selling what you need. Hence the use of gold at first, and then of national currencies.
Still, now that the currencies are floating, it is mostly based on the common agreement of people to give money a value, and not its intrinsic value that counts, as gold has been replaces with cheaper and cheaper metals. Want to learn more? Check out the infographic below!