MONEY: Is it really worth, what it's worth?

You take a crumpled piece of paper out of your pocket. On it there is a collection of numerical digits, a picture of a deceased national icon, and not much else worth taking any notice of. You hand it over the counter to the Shop Assistant, and in return, you are handed your product of choice.

But how and why does this seemingly irrelevant note, or even a coin, hold a value?

Well, I'm afraid to inform you that all of your money has no inherent, permanent, or even vested value. It is all essentially worthless. Yes, I did say that your money is worthless.

But surely it does you may say. You may believe that the Government has stocks of precious metals which are used to backup the value of their currency. Therefore, your money's worth is backed-up by a tangible asset, and it has a relatively secure value. But if you believe so, take a look at the chart below.

These countries represent 65% of the Global Population, and, more importantly, 89.6% of Global GDP. And really, the only nations which can truly claim to have their currencies propped up by Gold reserves are Venezuela, Switzerland and Kuwait. For the majority of the other nations, commodity reserves were destroyed in around 1971, as President Nixon declared the US would no longer exchange dollars for Gold.

So where does the apparent value of money that we appreciate and use all the time disseminate from?

Well, there is a limited supply of money, and there is a large demand for it, as people want, and currently feel that they need it in order to purchase goods and services. Furthermore, they want it because they believe that the money will hold a value into the future, and they have confidence that it will be accepted wherever they desire to spend it now and then. Hence, money is based upon a mutual set of beliefs, rooted by a confidence in future expectations, especially for inflation, and a faith in the acceptability and trade-worthiness of the currency.

Faith may not seem like the most sturdy basis upon which to build a global economy. However, the theory of the 'Double Coincidence of Wants' goes part of the way to explaining why it is unlikely such a confidence-based monetary system will disappear.

Realistically, the only way that the whole monetary system will crash, is if inflation runs riot and people lose all faith in it's purchasing power.

However, please notice the use of the term money rather than currency. Individual or linked currencies are much more liable to influence from a poor, corrupt or misinformed Governement(s), and single currencies are hence more likely to crash, although likely just to be replaced by another currency in the same monetary system.