Currencies
This is an image of some world currencies.
Currency is a type of money that is used in standard trade. Currency is helpful in that it enhances trade in that it is standardized in units and is generally universally acceptable.
There is usually one dominant currency that other currencies are tied to. This is also known as a ‘reserve currency’. Most central banks hold large deposits of a reserve currency. This enhances that country’s ability to conduct trade.
Currently the reserve currency is the US dollar, but in the past the reserve currencies were the Greek drachma, the Dutch Guilder, and the British pound sterling.
Most of the early currencies were backed by silver and gold, and the United States followed this process with the Gold certificate and the Silver Certificate..
In 1971, the United States unilaterally ended the gold / silver backing of the US currency. This created what is known as a FIAT CURRENCY, a currency without backing by a physical commodity. Since the US dollar was the reserve currency, other currencies adapted to the change and. decoupled their currencies from gold and silver as well. A fiat currency allows a government to print money and causes a loss of purchasing power to the users of the currency.
EXAMPLE
To understand this, the price of gold has risen in recent years. In 2021Dec, gold was valued in USD at $1,792 per ounce. At the time of this writing (2025Feb), gold was valued in USD at $2,900 per ounce.
It is important to note that the ‘Value’ of gold does not change. What changes is the amount of fiat currency that it takes to buy an ounce of gold. Since it takes significantly more USD to buy an ounce of gold in 2025 than in 2021, purchasing power has been lost.