When he encountered the Great Khan’s paper money in China around 1260, explorer Marco Polo was astonished at the ready acceptance of what we now call “fiat money,” i.e. currency established by the government (from Latin “fiat” = it shall be). He wrote, “All these pieces of paper are issued with as much solemnity and authority as if they were of pure gold or silver … [a person can] transact all sales and purchases of goods by means of them just as well as if they were coins of pure gold.” Until 1000 AD in China, virtually all money was “commodity money” like salt, gold and silver, valuable in its own right. Nowadays, we’re so used to paper money that we hardly question its value, even though it’s been only 51 years since the U.S. Treasury ceased minting silver coins once the metal content value exceeded the face value. A 90 percent silver, pre-1965 quarter is now worth about $1.40.
Since it’s intrinsically worthless, fiat money depends on trusting one’s government, which hasn’t always worked. For instance, when the German Weimar Republic was threatened with the collapse of its monetary system in 1922, authorities reacted by printing more and more banknotes,