How does paper money get its value?

Financial markets

Money is the basis of finance. Actually worthless paper as it is a valuable means of payment. The basic text describes the function of money and the difficult task of keeping the amount in circulation in balance.

The euro bills that you get at ATMs are only a small part of the money that is in circulation. (& copy picture-alliance / dpa, Friso Gentsch)

If you look at the economic system as an organism, money is the blood that pulsates through veins and veins. Money is one of the great inventions of modern economies. Since people have been producing based on a division of labor, they have to swap with one another. The exchange of product for product is very laborious. The products are worth different amounts and the person who offers a product does not always want exactly what the other could exchange for it.

In order to facilitate this process and to be able to save a value from time to time (i.e. to give something away without exchanging something for it immediately), they looked for a universal medium of exchange that should have certain properties: It had to be generally recognized and easy to store . It is obvious that strawberries are not a good means of payment because they rot within a few days. In addition, the medium of exchange had to be shared and transported. After all, it had to be limited in its circulation, that is, it had to be secured against counterfeiting (and thus any multiplication).

It has been shown over the course of history that coins best met these requirements. They were mostly made of precious metal and therefore had a certain value, or the value was stamped on them. In the Middle Ages, the coins were then supplemented with paper money. Originally, this paper money was nothing more than a deposit receipt for deposited coins. The banknotes that have emerged as a practical means of payment are worthless, that is, they have no use value of their own, they only have an exchange value. (You can still do a lot of practical things with gold and silver.) The introduction of money made it possible to trade everything for everything, the value could be stored (saved) and there was a common size in which the value of everyone was Let products be compared with one another, regardless of whether it is a liter of milk or a carpet.

Money is a universal check of goods - that's what makes it so interesting

Whether you want to go on vacation or buy a bookshelf, whether you want to own a computer or a pizza: you always need money. Most of the money we spend, however, we never see. It appears as income (e.g. as a salary payment) on our bank statement and goes down again as an expense (e.g. for rent). This so-called book money (as opposed to cash) plays an increasingly important role in modern societies, payments are made by bank transfer or with “plastic”, i.e. by credit or Maestro card.

If money is a check of goods, it is important that it is also covered. Paper money is not valuable in and of itself (it is just a piece of printed paper), but rather as a “voucher” for goods. If these are not available, the money is worthless. In a situation like the one we had in Germany after the end of the Second World War, goods are exchanged for goods again, unless another currency develops that is generally accepted. Before the currency reform in 1948, these were, for example, cigarettes or nylon stockings. So there has to be just as much money as there must be goods. If the circulation of money increases without more goods being offered, these become more expensive, that is, the relationship between goods and money levels off again at a higher price level, leading to inflation. If more goods come onto the market without there being any increase in money, money becomes increasingly scarce, so prices fall, this is called deflation.