What is money? How is its value set?

What is money? How is its value set?

How much do you know about where and how money gets its worth? Is money real, or just a construct? Does money have a real value or just an agreed upon worth? Who sets the value of the money you spend?

Most of these questions can be summed up in this statement, “Money is any article or substance used as a medium of exchange, measure of wealth, or means of payment, as checks on demand deposit or cowrie.”

Or another way to say it is: “Money is an idea that both governments and their citizens have agreed to use as an easy form of exchange that has a floating value.” (This is why the “cost” of things changes all the time.)

Now here are a few interesting things about money.

  1. The worth (value) of money may go up or down, based on the perceived stability of the economy of the issuing country, regardless of the amount in circulation.
  2. A country can manipulate the value of its money (exchange rate) by:
  3. Increasing or decreasing the supply or adjusting their prime interest rate
  4. Posting good or bad news about the economy (or sometimes withholding information)
  5. Releasing information on its budget, debt, and/or trade agreements
  6. Buying up or selling off its or another country’s currency
  7. Other countries can also affect the value of your dollar by doing many of the same things listed above.

My next book, Lethal Interest, will deal with these matters.