[nradov]

Fiat currency has value because nation states maintain effective monopolies on violence over certain geographic territories, and demand that taxes be paid in their currency. That's the brutal reality. Trustworthiness has little to do with it.

[Rotten194]

If you believe that, how do you explain the OP post? The Somali government collapsed, it had no ability to enforce violence. And if currency was solely predicated on violence, why would the warlords bother to loot the central bank for it's paper currency? They could just buy bulk paper and write "accept this for your goods and services or we'll kill you" on it and print as much as they want (assuming that most warlords have shorter-term goals in mind than hyperinflation, like being able to pay their soldiers).

[neilwilson]

Currency has two worths. It is worth something as a printed piece of paper and it is worth something as a token. Both of those ultimately representations of human effort. If I tax you 1 groat per working hour and pay 10 groats an hour for your time then you can automatically price things in groats. If you print Somali shillings and that takes an hour to get 1000 shillings then you can price in Somali shillings. Because you are unlikely to exchange your hours worth of currency for less than an hours worth of effort from somebody else. That then ripples down the chain. Tax is a sufficient and reliable way of ensuring a demand for a token in a currency area. But currency can circulate for other reasons too as we see with Somalia.

[Rotten194]

Ok, in that case I agree. Taxation does set a lower bound on the value of a currency (barring unusual circumstances like hyperinflation), but it's not the sole determiner of a currency's value.