In ancient times when people used batter system for transaction many found it biased and uneven because the commodities demand and supply had a difference of value.
To overcome that the concept of money was used. First it was used in terms of coins then paper currency took over the whole world. But on just any piece of paper, what is it that gives money its value? Why this piece of paper is considered to be the most precious thing.
This is Now You Know and in today's video we will tell you what gives money its value? And what impacts can it create in the market forces?
The amount of money is in the market makes the money valuable. From the beginning the money was linked to valuable commodities and its circulation depends upon the government's gold and silver reserve.
But after 1971 when this system was abolished Fiat Money came into the system which means the government will now control the printing of money in the economy. So, why not just print unlimited money and distribute it?
Well the idea is nice but not practical. Because then the money will lose it value. The purpose of money is to exchange for goods and services. If the money flow increases then everyone will get a smaller portion of it causing inflation.
On the other hand if the money flow remains the same then and commodities are produced, then the value of money will increase resulting in deflation. The government needs to find the right number for how much money to print because neither inflation nor deflation is good for the economy.
The government use vast amount of data to find out how much currency circulation should be done is the economy depending upon inflation rates, unemployment rates and international trends.
So, how much is your money worth?
