Dollars

I think this is how it works with money: there's a slice of value that has been assigned to the pool of US dollars. If you assume (for the sake of discussion) value is indestructible, it always exists. However, it can shift from fiat currency to another. So, if US currency became unpopular, all of that value would likely shift to a different currency, or into some other investment or object.

So technically, a dollar has significant *value*, but there is nothing holding that value in place. It's like a sponge full of water and one day that water could easily just move to something else. Whereas a stock or a piece of gold is more like a share of the water itself.

The question of whether we should have gold backed dollars is one that I've though about and never totally came to a conclusion.

However, I think this may be the reason that non-backed currencies are more popular these days: You typically can't use the value when it's locked in currency. That is, you can't use a million gold bars for jewelry and electronics if they are just sitting in a vault and maintaining the value of a US dollar. So, your country becomes weaker than the country that just uses the gold.

By just telling people to assume that dollars are worth something and not backing them, you free up that supply of gold to be used in more useful ways.

There's a certain amount of value that a country should have for the purpose of trading but not using. (It's essentially the amount everybody has saved collectively.) It's OK to represent value with fiat because doing that means that you don't have to waist a bunch of intrinsically valuable stuff sitting in a vault. However, the downside is that the fiat currency can arbitrarily change price.

Perhaps the economy's level of demand for trade tends to define the value of its fiat currency.

Anyway, a conclusion from all of this is that "both are wrong." The the view that dollars have no value is wrong. The view that dollars have solid value is wrong. The truth (that everybody knows in the back of their mind) is that dollars have value, but because they are fiat currency, that value can shift anywhere for any number of reasons at a moment's notice. They are a completely unstable value-holder in theory. However, since their price fluctuation is slow, practically they are not a big risk.