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A good book covering the subject is The History of Money (Jack Weatherford). Money was has had a tradition of being valuable in its own right (gold and silver
by mckoss 15y ago
A good book covering the subject is The History of Money (Jack Weatherford). Money was has had a tradition of being valuable in its own right (gold and silver coin), and eventually banks created paper money that represented an amount of gold held in reserve.
The Bank of England, was at first a private entity (established in 1688) and was only nationalized in 1946[1]. The notes they issued were backed by deposits of coin, gold, or silver. They broke with the gold standard in 1931, and it's then we see money tied not to a specific asset, but rather as a debt instrument; it's valuable only because someone promises to pay you back.
When the debtor is a nation-state, we have fiat money, and the money is backed only by the faith and credit of the nation who issues it.
As Weatherford's book points out, fiat currency was not invented by the British, as the Chinese were using a similar system in the 1st or 2nd century, and continued to use a paper money system until 1399. Abuses destroyed the value of the paper currency, and it did not reappear in China until the 20th century.
[1] http://en.wikipedia.org/wiki/Bank_of_England http://en.wikipedia.org/wiki/Bank_of_England
- VladRussian 15y ago>and the money is backed only by the faith and credit of the nation who issues it. another view was that the demand for and value of the money is supported by the government collecting back the taxes in supposedly the money printed by the government. But such a view is pretty much out of the window in the modern world of unbalanced budgets, "discount windows" and multiples-of-GDP sovereign debts
- nl 15y agoAs Weatherford's book points out, fiat currency was not invented by the British, as the Chinese were using a similar system in the 1st or 2nd century, and continued to use a paper money system until 1399. Abuses destroyed the value of the paper currency, and it did not reappear in China until the 20th century. This is accurate, but incomplete. Wikipedia has a decent page on the subject of fiat currency in the 18th & 19th century: http://en.wikipedia.org/wiki/Fiat_money#18th_and_19th_century http://en.wikipedia.org/wiki/Fiat_money#18th_and_19th_centur...
- WA 15y ago"Money was has had a tradition of being valuable in its own right (gold and silver coin), and eventually banks created paper money that represented an amount of gold held in reserve." You should read the book Debt: The First 5000 Years. It might be an interesting read for you, as the author points out that times of virtual and "real" currency switched quite often. It shows some really interesting facts about the origin of money - especially the fact that the idea of money is not based on the idea to improve barter.