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31 October, 07:29

Explain why it is not necessary for paper money to be backed by some commodity (eg gold) before it can have value?

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  1. 31 October, 07:37
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    Paper money also called fiat currency is usually not backed up with a physical commodity because it is regulated by the central bank.

    It effect the Government creates money supply just by signing out the directives through liquidation. The government thus maintains the value by making it the standard for debt repayment.

    For example, the US dollars which is a paper or fiat currency would have no value if was not made a means of payment the Government.
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