does money relate to gold? how does money have its value?

Answer 1

Many years ago, most major currencies - £GB $US etc worked on the "Gold standard" which meant govenerments would only print as much money as they had bullion in the vaults for.

At this point, the currency was very secure from devlaution etc - because it was represented an amount of gold - the vlaue of which tends to be VERY regular right around the world.

Now almost all currencies have left the Gold-Standard - and governments print a little more money than they can truly back with gold.

Always assuming people do not wish to convert to gold at the same time, this ought not to be a real problem - thought it does mean that things like "Billion Mark notes" in German were able to become reality. Folks were mugged in the streets carrying wheelbarros of money.

For the wheelbarrows - the money was left scattering the street. Poor families also used banknotes to wall paper the house or use a lavatory paper.

Frightning huh?

Answer 2

Basically money is a common medium of exchange. So money is whatever a common medium of exchange is. If there is no common medium then one has to obtain what one wants by bartering what one has.

Metals, particularly precious metals became a barter substitute or common means of exchange because they can be standardised, and embossed with monarch's heads etc. However, they could also be stolen.

Paper money, first used by the Chinese, was introduced in England as an IOU. So the government had money for the war against the French and the merchants had money to buy goods because the Government would pay it back.

Then came the industrial revolution, and a number of very expensive wars so the need for money outstripped the ability of the Government to repay.

Now currencies are a commodity in their own right. and are bought and sold as a commodity, and usually the central banks try to ensure that there is stability in the market, by selling and buying according to their needs and policies. The advantage of currency over gold is that it can be generated according to need.

Basically how this works you go to a shop and enter a contract to pay for the latest must have gadget in consideration certain in money. But say you won't have that money till next month. However, instead of going home and waiting for next month you whip out your credit card and pay for it in consideration certain in plastic

So currencies is the money of today

Answer 3

What the value of money actually is (i.e. what units of the standard will buy, in general) depends on 1) how much money there is, 2) how much money is held out of circulation, and 3) how many exchanges circulating money is used to cover. This is the "quantity theory of money" and can be expressed in a famous equation by the American astronomer and economist Simon Newcomb: MV = PT. "M" signifies the actual quantity of money; "V" signifies the "velocity," which is the rate at which money circulates or how long money is held out of circulation; "T" is the number of transactions, or exchanges; and "P" is the level of prices. This equation easily illuminates most questions about inflation or deflation, which is how money becomes less or more valuable over time. The evidence for the "quantity theory" is that historically inflation and deflation have occurred independently of economic growth and recession.

http://www.friesian.com/money.htm


Or another words, It has value becouse the people says it does.

Answer 4

No - paper money no longer has any relation to gold at all. The reason that countries have gold reserves now is that, in the event of war, only gold can be used to purchase armaments - for the simple reason that if you lose the war, your paper currency will be worthless and so foreign arms dealers will only take gold. Paper money maintains its value because we all agree that we will accept it, knowing that we can then hand it to someone else and they will accept it also. If that trust ever disappears for any reason, the currency becomes worthless.

Answer 5

In the past in the UK money related to gold. Hence why it says on the front on notes 'I promise to pay the bearer on demand x pounds'. However, there is now not enough gold to pay out all paper money.

Answer 6

American money doesn't relate to gold

Answer 7

At one time the United States could back all the printed money and coins with gold or silver....Don't khow about todays world...

Answer 8

no offense, who cares i just like spending it.......ITS AWESOME!!

Answer 9

i don't know