People trust US government issues valuable currency, which can be used in the trade. People were assured that the bill that they got can be exchanged with an equivalent one with the same value. Then the author introduces us the idea of quantity and quality embedded in the value of the fiat currency. For the issuance and supply of currency, consumers tends to desire more quantity currency since this gives them more purchasing power, but when the currency devaluates, they will prefer qualitative currency where it supports rising value. In somehow, he also explains the metaphor “barrels” used in describing the value of money in someone’s writing.
Monday, March 7, 2016
Money Book Review Chapter 3
This section mainly takes about the value of money. It is very hard for me to read. One of the reasons is the vocabulary very complicated; another reasons is the lack of knowledge of cohesive meaning throughout the writing. Fortunately, I understand it after lots of attempts. There are two values of the money. One is gold-backed currency, which uses gold to measure its value. Another is the “Greenback” money which is a fiat money without any measurement of its actual value. This the one we use today, the dollars. Back in the 1890s, there was a strong distrust towards bankers and government. This was the beginning of "greenbacks", a fiat currency issued to help pay for Civil War expenses and were blessed as legal tender. At first, the government can issue fiat money without limits. Therefore, the value of Greenback need people's consent on its values. For example, the US government issues dollar bill, which is trustworthy globally.
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I know that many countries had a supply of gold that still backed the "Greenback" money for some time but I believe that ended for the U.S. in the 1970s. It is interesting to think that our money is not technically valuable, it's only valuable because the government says so. It is also interesting how the dollar can fluctuate in value.
ReplyDeleteI thought that the greenbacks were called that because of their green color?
ReplyDeleteThe establishment of fiat money makes the exchange process easier than ever. Nowadays, the value of U.S. dollar is somewhat more stable compared to other developing countries currencies--a store of value. This makes many business in other countries only accept USD as the legal payment compared to their domestic country currencies.
ReplyDeleteGlad you finally understood it after reading it so many times. But is gold-backed currency similar to the way that in prisons they use cigarettes as currency?
ReplyDeleteIt's very interesting to understand about the creation of currency. I guess the notion of money actually carries no realistic value in comparison with gold. However, the authority of government instills the papers with the exchange value. I wonder if the government loses its power, what will happen during that time?
ReplyDeleteI understand man. I have a hard time reading my assigned chapters as well.
ReplyDeleteI am impressive that you have went through this difficult chapter. Did you make your font highlight on purpose or it was an accident? lol.
ReplyDeleteAfter reading your post, I learned there are two value of money. one is gold-backed currency, and the other one is call the Greenback.
ReplyDeleteThe value of money...
ReplyDeleteI think that is interesting to understand what is the absolute and the relative value of money. With the same amount of cash you can experience and live, and buy completely different things...
The question is 5 dollars value five dollars, or is your power to buy something with 5$?