Posted by Allison on 29 April 2016, 15:42
We’ve been using money for thousands of years. Today, different countries use different currencies, and we’ve agreed different exchange rates between many of them as well. However, in times gone by, when the world felt like a much bigger place, trades were still worked out between people of different areas when they had different currencies to use and exchange.
Back then, money could be anything. It could be gold, silver or bronze. It could be shells or other items that people agreed to exchange with each other. Back then, times were very different in that everything traded was worth something.
Today, we pull a £50 note out of our pockets, or a $50 note or the same in euros, and we attach value to that note. We know we can buy goods to that value with it. But the money itself – the paper that is printed on – is worth very little compared to the face value attached to it. If the Bank of England decided to introduce a £100 note, it would be seen and assumed to be worth that amount.
If the value of the dollar nosedived, for example, it would take many more dollar notes to pay for things that currently require only one or two to make payment with. Indeed, it is only in situations where hyperinflation occurs that we see just how worthless today’s notes can be.
Gold never really changes too much in terms of value. If all our coins were made of gold, we could only ever have a finite number of them. We would always attach a value to them because of this. Yet with coins made of other lesser-valued things, there is no chance of this happening. Paper is just paper, and while we may write on it and say it is worth a certain amount, this is actually not true. We must all be part of the conceit for this to work, and when the system collapses, things can go very wrong indeed.
Thankfully, this doesn’t happen very often. Yet when it does, it can have profound and far-reaching consequences for all those concerned. Maybe we would be better off trading in gold after all.