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Why Money Exists

Money exists primarily because we believe in it. Run that line again. Money exists because we believe in it. Your purse or wallet contains pieces of paper, fragments of metal and slivers of plastic.

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They have value because we all agree that they are worth something. It’s a highly efficient way of communicating an agreed value but, at the end of the day, all you have are printed pieces of paper and stamped pieces of metal and plastic. The pieces of paper and metal function because we all agree that they represent something of value. Your bank account is even more obscure. The value of your money is not necessarily represented by pieces of paper and chips of metal.

Your bank account functions on electronic impulses that represent an agreed value. Your money just slipped quietly into the twilight zone of digital expression. But if your computer screen shows an amount in your account, it’s as real and valid in theory as a wad of printed paper in your wallet or a slice or two of precious metal in your hand. Money exists because we believe in it.

It’s a very powerful, communal belief and we rarely spare a thought about it but the only reason those pieces of paper are valuable is because we all agree that they have a specific value.

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