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News Link • Currencies

"But, It's Not Backed By Anything?"

•, by Knut Svanholm

After all, if something is to be backed by something else, that something else better be something of value.

Like gold. Why does gold have value? Is it valuable because you can make jewelry out of it or is jewelry made out of it because it's valuable? You can't eat it and it's not very good for any other basic human need. So what makes it valuable?

A fundamental thing that people miss when thinking about value is that value is always subjective. Not a single thing is of the same value to one person as it is to another whether the price is the same or not. A price means one thing to a wealthy person and another to a poor person since the amount of time and effort they have to sacrifice in order to acquire that thing. Things like debt and compound interest also play a huge role here. In addition to this, the value of something priced in any fiat currency changes over time since the value of the currency is constantly being diluted through inflation. The value of something boils down to two distinct variables, supply and demand. Supply is alwaysobjective to the buyer and demand is always subjective. This is also true for the medium of exchange or type of money that is being used to carry out the transaction. Money is simply the language we use to express how we subjectively value things to each other.

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