Quote:
Originally Posted by Raavak
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Whenever I think about this it kinda blows my mind. The only reason paper money (fiat) has a value is because of a perception, and everyone is on board with it. Or even worse, money in the bank: Its just a number on a register or a computer, yet someone will give me real stuff for this vaporous number. Its kind of a big system of trust.
Scary part is when the trust goes away (i.e. faith in US or any currency) so does that perceived value. You could conceivably be a multimillionare and wake up one day and not be able to buy anything if the system crashed overnight.
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Notice that the kind of system you're recognizing only exists as a post-gold standard system. It usually doesn't grow organically among voluntary transactions (and if it does, it dies quickly) - gold has always emerged as one of the primary competing currencies when people are allowed to use whatever they want as currency. Fiat money always emerges via coercion and legal tender laws. So enshrining it as the only currency people may trade with ultimately creates imbalances.
And it only works for a short time - because it relies on the goodness of those in power not to abuse the awesome power they have (essentially free money to spend on whatever you want for a short time, since you're spending dollars you just created). I can't say i'm surprised that the privilege was abused. After you abuse the privilege of creating the world's currency enough, it gets taken away (if over a period of time) and given to someone else. It happened to Britain before the US - now it happens to us. And the living standard of Americans will dramatically decrease when that happens.
Hence China's recent statements, echoing Russia's sentiment for some time...