Fiat money is a wonderful thing is it not? Truly one of the more useful developments in society since humans first learned to think / speak, that one can put in a day’s work and be rewarded with a piece of paper, which can itself be exchanged for something as marvelous as a punnet of strawberries or a Fender Jazz Bass.
So easy, right? And not a large wheel-barrowful of paper as citizens would have needed in the Weimar Republic, but a small scrap that is literally like Monopoly paper. (The 500 euro ($632) note, at approximately 404 pounds, is coincidentally exactly one week’s average gross salary for workers in the UK in 2011. Just think, all that purchasing power contained in a piece of paper measuring 160 x 82 mm! And in Bangladesh that note would be 60 percent of average annual salary…).
The public could be forgiven for wondering where the money comes from. Originally, that is. What is backing up the value implicit in a bank note?
The orthodox answer can be found in any textbook on economics of course. Ultimately the central bank backs up the value of paper money, with its "promise to pay the bearer on demand the sum of…" but of course since currencies came off the gold standard this promise to pay isn’t in the form of equivalent assets of intrinsic value, like gold, but just more of the same paper money.
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