Who determines the value of money?

“All money is a matter of belief.” – Adam Smith, 18th century CE

We do. Otherwise, what differentiates a $10 bill from a ripped piece of newspaper? Civilizations have afforded financial value to paper money going back to the 9th century Tang Dynasty in China!

Prior to the invention of printed Chinese paper currency, civilizations had assigned financial value to coinage dating back to the ancient Near East in the 7th century BCE. However, coins and paper have not been the only forms of money in human history. Seashells were woven together as wampum belts by Native Americans in the Northeast, and cowry shells were assigned monetary value in Western Africa. Amazingly, large carved stones measuring up to 12 feet high on the Pacific island of Yap in Micronesia also were used as a predecessor to money.

The economy is not a physical entity. We are the ones who assign value to dollars, Euros, Yen, and all other currencies. One of the biggest causes of the Great Depression was a loss of faith in the economy. People began to panic, which led to a run on the banks. We unfortunately saw this all too recently with the Covid-19 stock market crash. In times of crisis and uncertainty, it is understandable that people will lose faith in our economic system. Hopefully, as we grow closer to a successful vaccine, and employment increases, faith in the economy should naturally follow.    

Photo Source Yap: http://www.flickr.com/photos/12023825@N04/1230704703/in/photostream/


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