What gives a Dollar bill it's value

The main objective of currency is that it can and can take the value of goods and services which other things with the same material like paper cant with exception of cheque, bonds, etc. Although we cant make or build anything with paper like car and plane but still we can buy with it and this is what makes it different. Currency money is a Fiat money at present which can be used as exchangable object against goods and services. Most of the people know that the currency is printed by the goverment legislation and it is made by them as legal which normal paper in the book is not and because of it we can use it. But what gives value to it is different from what makes them legal.


Value of money is dependent on how much it is in circulation more or less. Long ago it was connected with gold or precious materials that a country have but after 1971 Dollar becomes what is known as a fiat money means not linked to any other material and its not the goverment that controls it, it is the federal reserves. It dicides the monetary policies and how much currency it should print it has 12 regional centers around the U.S in the major cities. It is operated by the non goverment branches to save it from politics. Its board of governers which is appointed by the presidents and confirmed by the senate reports to congress and all of the federal profit goes to the U.S national treasury as per the U.S goverment.

But why not the Fedral reserves do not print extra currency to give it to the poor because it has a value which by this would get deteriorate because it is use for exchanging with goods and services more currency means less value of it in market and less otherwise. Now here comes the topic of inflation and deflation.


Inflation means decrease in value of money and deflation means decrease in value of money. Two of either extremes are harmful for an economy if there is too much inflation then people would spend more and they want to hoard more substances like fuel and gold and then there price would increase and commodity shortage would began, on the other hand too much deflation would decrease consumer spending as people want to hold on to thier money beacause of businesses would shrink people would become unemployed and further spending would decrease as per economists and two of them are considered dangerous for an economy.

As per economists little bit of inflation without reaching the levels of disruption should be there to let the economy grow.

The federal reserves uses a vast amount of data to determine how much currency should be in circulation including previous rates of inflation, international trends and unemployment trends.