What is Money Really Worth?

Emily Musso, AM Period, Honorbound

There are many different types of currency in the world. For instance, the United States uses dollars, Mexico uses Mexican Pesos, Japan uses Yen, and so on [1]. Usually the government determines what money is truly worth, but the people can also affect its worth. Money can be a complicated idea. The employees at the Federal Reserve have a stressful job in trying to hold up our economy.

In Naked Economics, Charles Wheelan told a story about India. He said that many Indians involved in commerce will not accept a damaged rupee note, which is the Indian currency. Because many people knew this, it became a norm to not want to use or accept damaged rupees. The Indian Central bank considers any note that is damaged to be usable, yet the people still considered damaged rupees to be worthless. The banks in India “will exchange torn rupees for crisp new ones” [2]. In American’s eyes, it is illogical to do what the Indians did. However, they did this because they all knew that no one else would accept it, so they only used rupees that were intact and clean. This demonstrates the impact that the people of a country have with their purchasing power.

Figure 1 [3]

This brings up a point of money’s value and if it has any. Money is dependent on its purchasing power. Money is just paper that is assigned a value and those pieces of paper are used to buy goods and services. The people of each country essentially control the money. The people determine if it will be worth anything. The purchasing power of the people is very important. They could decide at any moment that money is no longer worth what we claim it is. We could stop using it in the way that we currently are, like in India how Indians would not use damaged currency.

The Federal Reserve has many jobs they need to do for the economy.  They have to worry about inflation, interest rates, and many other aspects. They most likely worry about facing a problem with the value of the United States’ currency. However, we are doing well with our money and it would be complete chaos to desert the current currency. We will most likely stick to what we have, at least for the time being.

There are also other factors that can determine the value of money. There are changes in interest rates, government spending, productivity, cost of production, and many more. These can all determine where the price level is at in the economy. It shows whether we are in a long-run equilibrium, a short-run recessionary gap, or a short-run inflationary gap. Needless to say, there are many things to take into account when observing money value.

[1] “List of currencies of the world,” countries-ofthe-world.com, Accessed June 20, 2017, https://www.countries-ofthe-world.com/world-currencies.html.

[2] Charles Wheelan and Burton G. Malkiel, Naked Economics (New York: W.W. Norton & Company, 2012), 230.

[3] Smith, Justine, “Money Map of the World.” JUSTINESMITH. Accessed June 20, 2017. http://www.justinesmith.net/collage/money_maps/world_money_map/.

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