What is money – and where do the different types of money derive their value?

1 answer:

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The value of the money was not too long ago based on a country's own amount of gold. The value of money has not been based on anything since 1971. In fact, money is now founded on the abstract concept of confidence. Money's value is not more linked with the amount of gold held, but rather to how much trust in the economy of a particular country exists, and its debt (bond) markets are a proxy indicator of a country's level of trust. The less faith in an economy, the greater the return on risk will be required by market forces. The less trust there is, the less demand is for the bonds of a country. As the bond price falls, the bond's return increases. In comparison with the risk of making the loan, a trade takes place when the yield corresponds with the level of return investors willing. The 2009 Greek debt crisis is a simplistic example. With the Greek government's trust level falling, Greece's 10-year bonds ' yield started to increase from 5 to 30 percent when Greece defaulted on its debts.

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