If a currency is backed by, oh let’s say gold, what would happen if one day it was reported that a way was found to inexpensively formulate gold out of inexpensive chemicals? The currency would plunge immediately because of the perception that what it was that gave it value was now valueless. This can happen no matter what the backing commodity is as was shown when salt was the legal tender in Rome and was used to pay the soldiers. Indians used shells and beads as currency because they were PERCEIVED to have value at that time. In todays world, as long as all currencies are more or less valued by the worlds perception of the strength of the (issuing) government there will be no problems. Germany had hyper inflation after the war because it printed endless amounts of currency that had nothing at all behind it because the country was in shambles and there was no “faith and trust”. It is but one example but it serves to make the point.
It is all about perception in any case. Even when the currency was backed by gold, it was illegal to own it except in the form of jewelry. You certainly couldn't bring your dollars into a bank and demand gold or silver for them.
I have been hearing the stories about the total collapse of the dollar for about 35 years now and I’m sure it will be said for another 235 years but it will not happen unless an event so cataclysmic occurs so as to make currency itself of no use.
Exactly! These clowns think that while our money was backed by gold we had no inflation or deflation. No booms or busts.