Why Does Cash Have Value?

Imagine you are at a toy store. You have a shiny blue token that the shop owner says is worth one toy. Even though the token itself is just plastic and not very heavy, everyone agrees it is valuable because they all trust the shop owner.

Long ago, money was like gold coins. It had value because it was made of precious metal. Today, our money is fiat money, which means its value comes from a rule or decree by the government. The government says it is money, so it is money.

If too many tokens are printed and there aren't enough toys in the store, the price of toys goes up. This is called inflation. When prices rise, each token buys less than before. That is why we need to be careful about how much paper money a country prints.

Cash has value because we all agree on it and trust the system that keeps it stable.