Money is valuable simply because we believe it is valuable. If everyone suddenly decided money didn’t mean anything, it would instantly lose all its value. At one time money was based on goods with value, but President Nixon changed all that in 1971 when he took money off the gold standard and put it on the imaginary standard, otherwise known as the floating market. This forced all other major currencies of the world to follow suit.
We all know money because it is how we conduct trades. Long ago, before money was invented, trading was done through bartering. If you worked for someone, they might give you some food, an animal or other useful objects. If somebody had things you wanted, you would trade some of your possessions to them for it.
After several thousand years, people began to understand that it was difficult to carry around a bunch of goods whenever a trade had to be made, so they started using a select few goods that had a universal value in society, such as precious metals. Gold and silver became the standards of trade. Later, nations began to form the gold and silver into common shapes marked with a symbol to let everyone know it is real and to eliminate the need of weighing it for every trade.
Eventually, even gold and silver became unwieldy, especially for large transactions, and paper money was invented. Paper money was a promise that a person had an amount of gold or silver, but it was kept safely in storage. Central banks of countries acted as a storage facility for everyone’s gold.
This system worked well for centuries, but it finally dissolved in 1971 when the United States decided dollars would no longer be based on gold reserves. Instead, it would be based on the confidence people had in its value. Other countries were forced to follow suit and an international foreign currency exchange sprang up. On this market, often called the Forex, billions of dollars are traded every day. This has made the value of a country’s money partially dependent on the principle of supply and demand. When the dollar is high in demand and short in supply, its value increases. When it is low in demand and the supply is high, its value decreases.
Posted 4029 day ago