Adrian,
It seems that you think money is supported by some standard? Everywhere you mention money, you talk about it being linked to some real item like gold or precious metals. In the video you posted they mention fiat money which is not linked to any real object. This is the best way for money to operate. Money that is tied to a standard is rigid and will expand and contract based on the amount of that material that a country has as well as the market value of that material.
When the US was operating on the gold standard, other countries were able to liberate our country of gold when gold was of low value. They would then trade gold for dollars when gold was of high value. I'm sure you can see how devastating this could be over the long run.
There was a time when we were said to be on the gold standard but banks would NOT trade gold for dollars; they would only give dollars for gold because we were trying to increase our gold reserves. I would have been pissed, because what value is my money if I can't actually trade it for gold? The only recourse was to switch to fiat money which better represented how the money was operating anyway. Money can still purchase gold and gold will still get you money but at any point the government can simply refuse to sell gold and they are not violating any contract.
There was even a short amount of time when the world was on the US dollar standard (Even though the dollar was fiat) and all countries agreed to peg the value of the dollar regardless of economic factors. The reason for this was because of the rampant inflation around the world and countries wanted a place to store wealth.
The value of a countries money is determined by many political and economical factors but most heavily by the GDP of that nation. It is kinda the way companyies are valued on the stock exchange; a mixture of confidence in the company, assets the company holds, business volumn, and exchange activity.
The way that currency exchange is set is related to a theoretical "basket of goods" that a particular consumer of that country will probably purchase. The value of that basket is set through market forces and that signals other countries as to whether our economy is inflating or receding.
The reason for useing fiat money is because it is reactive to the needs of the economy. The government can print more money to inflate the economy and can shrink the amount of money through the use of t-bills and government bonds (Hopefully the economy grows before the government has to pay off those bonds or bills). Another action that governments can do is simply start over and de-value a specific print run of their money which is a terrible way to operate and will certainly make your country lose traction against other currencies (who wants to own Pesos when Mexico periodically declare their money worthless?). The problem with fiat money is that it is historically impossible to control and usually leads to rampant inflation but theoretically, if managed correctly, it is the best way to respond to market forces.
Rhizo
It seems that you think money is supported by some standard? Everywhere you mention money, you talk about it being linked to some real item like gold or precious metals. In the video you posted they mention fiat money which is not linked to any real object. This is the best way for money to operate. Money that is tied to a standard is rigid and will expand and contract based on the amount of that material that a country has as well as the market value of that material.
When the US was operating on the gold standard, other countries were able to liberate our country of gold when gold was of low value. They would then trade gold for dollars when gold was of high value. I'm sure you can see how devastating this could be over the long run.
There was a time when we were said to be on the gold standard but banks would NOT trade gold for dollars; they would only give dollars for gold because we were trying to increase our gold reserves. I would have been pissed, because what value is my money if I can't actually trade it for gold? The only recourse was to switch to fiat money which better represented how the money was operating anyway. Money can still purchase gold and gold will still get you money but at any point the government can simply refuse to sell gold and they are not violating any contract.
There was even a short amount of time when the world was on the US dollar standard (Even though the dollar was fiat) and all countries agreed to peg the value of the dollar regardless of economic factors. The reason for this was because of the rampant inflation around the world and countries wanted a place to store wealth.
The value of a countries money is determined by many political and economical factors but most heavily by the GDP of that nation. It is kinda the way companyies are valued on the stock exchange; a mixture of confidence in the company, assets the company holds, business volumn, and exchange activity.
The way that currency exchange is set is related to a theoretical "basket of goods" that a particular consumer of that country will probably purchase. The value of that basket is set through market forces and that signals other countries as to whether our economy is inflating or receding.
The reason for useing fiat money is because it is reactive to the needs of the economy. The government can print more money to inflate the economy and can shrink the amount of money through the use of t-bills and government bonds (Hopefully the economy grows before the government has to pay off those bonds or bills). Another action that governments can do is simply start over and de-value a specific print run of their money which is a terrible way to operate and will certainly make your country lose traction against other currencies (who wants to own Pesos when Mexico periodically declare their money worthless?). The problem with fiat money is that it is historically impossible to control and usually leads to rampant inflation but theoretically, if managed correctly, it is the best way to respond to market forces.
Rhizo
