| > > many things would work exactly the same if people agreed to pretend that gold was moved from one vault to another instead of actually physically moving gold around. > This is how commodity money works. No, its how representative (or commodity-backed money) works, as distinct from commodity money. > The dollar (as well as almost all paper currencies) originated as commodity money. The dollar (whether you mean the US dollar or its Spanish predecessor) originated as commodity money -- actual silver coins -- true. But most paper currencies (including the -- later -- paper dollars) originated as representative, commodity-backed, money. > The paper dollar was backed by and convertible to gold. The original dollar was silver. The original paper dollar was ... a trickier question. If you count the 1861 demand notes as "paper dollars", then, as they were initially redeemable for gold (as the US had switched from a silver to a gold standard) money, they were convertible to (redeemable for) gold -- but they were not backed by gold (and redemption was soon suspended.) If you mean the first legal tender paper dollars (U.S. Notes) issued soon after the 1861 demand notes, they were pure fiat currency, not backed by or convertible to anything. |