I answer your question, what gives a dollar bill it’s value! Join me here to discuss how value works in this quick and dirty video to help answer your question. Don’t forget too….
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For those who would like to also follow along with the video, or prefer to read the information, here’s the video script for reference:
What is going on crypto family, so today I’m going to talk to you about the value of money. This video is going to be about exactly what gives a dollar bill it’s valued and how a simple piece of paper with special ink and designs on it has become what we know and use on a daily basis to buy, sell, and ultimately transact with.
People are always asking questions about the value of the U.S. dollar or the value of different cryptos, and well, let’s be honest, it can be kind of hard to understand what gives a simple piece of paper or digital currency its real-world value.
For example, what do you think would happen if you tried to pay for dinner with some printer paper. How bout a post-it note? Or if you used monopoly money? They’re paper too, right? That wouldn’t work out great for ya. See the thing about money, is the value of a dollar has very little to do with the dollar itself. Crazy right?
A dollar bill is valuable because of what it represents and because of a somewhat complex economic system that gives it its value. Historically, Currency has been linked to real-world value.
Think about way back when humans exchanged goods and services for valuable metals, spices, and livestock through bartering. These were things that had value based on how they could actually be used in daily life. This system works great in small societies, but not so much in most of the world today. Just imagine going to the store and asking what you can get for a goat and two chickens.
We’ve moved quite a bit beyond that, but if we were to go to those people in the past, and told them they would eventually be able to buy things with a small piece of green paper, they would probably think you were crazy.
Remember when I mentioned people used to exchange goods and services for valuable metals?
In the past, the US Dollar was closely linked to the federal gold reserves which kind of maintained the old system of real-world value. Most people call this system the “Gold standard”, which is a kind of monetary system that directly links a currency’s value to gold or silver reserves. Countries that use the gold standard aren’t able to increase the amount of money in circulation without also increasing their gold reserves also. However, because the global gold supply is slow in its growth, being on the gold standard would theoretically hold government overspending and inflation in check. Maybe not such a bad thing depending on how you look at things…
So, when did the U.S. first decide it needed to get off the “gold standard?”
This happened in 1933 – but why did the U.S. abandon the gold standard?
Ultimately it has been argued it was to help combat the Great Depression and the situation facing the U.S. at the time. You see, unemployment was a major issue, along with deflation which seems to be spiraling out of control. To help deter people from cashing in their deposits and ultimately depleting the gold supply, the U.S. had to keep interest rates high, which in turn made it too expensive for most people and businesses to borrow money—which further exasperated things. All these circumstances coupled with the fact that the U.S. government also found itself unable to do much to stimulate the economy…
Well, this led to President Franklin D. Roosevelt deciding to cut U.S. ties with gold in 1933, which allowed the government to pump money into the economy and lower interest rates. Was this a terrible thing? Well, hindsight is 20/20, but Liaquat Ahamed who authored “Lords of Finance,” says that “Most economists now agree 90 percent of the reason why the U.S. got out of the Great Depression was the break with gold”.
So even with the 1933 break with gold, The U.S. technically still allowed foreign governments to exchange dollars for gold. That was at least until 1971 when President Richard Nixon ended foreign governments’ ability to exchange dollars for gold. This helped prevent dollar-flush foreign powers from sapping U.S. gold reserves.
So how does this affect the value of the dollar today? Before the change, the amount of cash printed was based on the amount of gold in the reserve, but the new system relies on federal policy and discretion to determine how much money is printed. We call this currency that is not backed by valuable commodities Fiat money. Why is this important to understanding value? Because a dollar’s value is sort of based on supply and demand. The less in circulation, the more demand. Higher demand means higher value. The more currency available, the lower the demand. Less demand equals less value. Or at least, that’s how things are supposed to work…
Think about it like this, We would all love to be millionaires, right? Well, if everyone was a millionaire then that amount of money wouldn’t have the same value. I’m not sure who said it first, but a common quote to simplify this concept is “If money grew on trees, it would be as valuable as leaves.” Something can only have value if there is a demand for it. There is little demand for something that everyone has in large supply.
So to answer the question of why a dollar bill has value, it’s basically because we say it does. It has no intrinsic value of its own and only really has meaning because our society agreed that it’s legal tender to purchase goods and services. You could also argue that the U.S. Dollar is backed by the U.S. Economy, it’s people and the many bombs, bullets and enormous military force they have too… Either way, its value typically is fluid and changes with supply and demand and the needs of the market. So in the end, value is a lot more than a denomination and a dollar is a lot more than a piece of paper.
Why does all of this matter? Well, If you’ve been paying attention to U.S. national debt over the last 20 years, you’d see that the U.S. dollar seems like it is just being printed into oblivion. You’ve probably heard about bitcoin, it’s a finite or limited supply, and it’s proponents saying it can help people hedge against fiat currencies. History has a way of repeating itself, and that’s no exception to even the U.S. Dollar. Every single Fait currency in existence has eventually failed.
Some things people have used in the past as safe-haven assets have ranged from owning land, resources, businesses, gold, silver, precious metals, etc. Cryptocurrency, bitcoin and blockchain technology offers a potential alternative to fiat currency, and right now, many people consider bitcoin as a somewhat “digital gold”.
Considering Bitcoin’s track record over the last 10 years it’s easy to see why people view it in this light. However, I do caution people, bitcoin is great, I’m personally invested and believe in it, but as great as it is, it has potential vulnerabilities which just can’t be ignored. I did a video a while back explaining these vulnerabilities called Leave Bitcoin Alone. I’ll put a link in the last 30 seconds of this video if you’d like to watch it.
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** This is not financial advice and these are simply my own opinions, as such, this should not be treated as explicit financial, trading or otherwise investment advice. This is not explicit advice to buy these cryptos, do you own research.**
***Disclaimer: Statements on this site do not represent the views or policies of anyone other than myself. The information on this site is provided for discussion purposes only, and are not investing recommendations. Under no circumstances does this information represent a recommendation to buy or sell securities.
****ALWAYS check with professional tax service providers and legal professionals before you buy, sell or trade cryptos!
Thanks for watching, God Bless and have an awesome one!
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Also, be sure to check out our other articles on to cryptocurrency, bitcoin and blockchain technology below:
“Blockchain: What It Is and How It Works”; which delves into the history of blockchain, how blockchain works, how cryptocurrency uses blockchain, discusses anonymity, various types of blockchains and the different uses.
“What is Ethereum? How does Ethereum work? ETH Explored:” Dive deep into one of the largest blockchains, discover how it is different from Bitcoin and other cryptocurrency projects.
“How To Store Cryptocurrency / Safeguard Your Crypto Assets”; which discusses the most popular cryptocurrencies, how to protect your crypto, online wallets, offline storage, specialty hardware, crypto exchanges, and even gives Crypto Beadles Personally Recommendation with storing cryptocurrencies.
“Scrubbing Currency: A Comparison of Crypto to Fiat for Known Money Launderings”; This article dives into the various efforts to curb money laundering, typical money laundering with fiat currency problems faced by authorities worldwide, the rise of cryptocurrency, the differences between traditional fiat and cryptocurrencies, the history of traditional banking and it’s many failures.
I recently released a book called “The Bitcoin and Blockchain Booklet: The Beginner’s Guide to Getting Started with Cryptocurrency” on Amazon.com. You can grab it on Kindle and paperback to learn more about blockchain and cryptocurrency.