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Currencies aren't backed by bonds.
by soVeryTired 9y ago
Currencies aren't backed by bonds.
- runeks 9y agoBonds comprise the vast majority of assets on the balance sheet of the central bank, so why not? When gold was the primary asset on the balance sheet of central banks, we said that their currency was backed by gold. So why isn’t it backed by bonds now, when they have replaced gold in this regard?
- ciro_langone 9y agohttps://en.wikipedia.org/wiki/Fiat_money https://en.wikipedia.org/wiki/Fiat_money Bonds have value because we assign a dollar value to them. The dollar value itself is fiat currency. The bonds do not value to dollar, the dollar values the bond.
- soVeryTired 9y agoWhen the dollar was backed by gold, it was possible to go to the central bank and redeem a fixed number of dollars for a certain amount of gold. While central banks do hold bonds on their balance sheets, it is not true that an investor can convert a predetermined dollar amount into a bond at the central bank: bond prices are determined by the market.