The rise of the modern state has allowed for sovereign backed fiat money,
called fiat because it's not actually backed by gold or silver or
any other metal or commodity.
Instead, it's just a promise of the government.
It is effectively backed by the human capital of the citizens of a country and
the belief that the government in the future will be able to tax that
human capital to pay off any debts that it has.
At some point gold and
silver by themselves really weren't efficient ways to transact.
And had we not come up with fiat money,
we would've been very limited in our ability to have economic growth.
If you think about how difficult it would be to carry gold around if you wanted to
buy a very, very large building in London, or to carry enough silver around and
silver, of course, now being worth, in American dollars, $15 an ounce.
So you would need tiny, tiny, little pieces of silver if you wanted to buy
a lot of things that were worth less than $15.
This is not a very efficient way to transact.
So instead, what we have is a form of paper currency, or fiat money.
And that was developed and through fits and starts over the last few centuries and
became really, much more of a success into the 20th century, but
even stable governments have limits.
And the demand for
money can exceed the supply of metal, plus sustainable fiat money.
Additional monies are then manufactured by the financial system,
using private debt backed by collateral.
When you have a demand deposit in a bank that demand deposit
is first principals backed by the assets of the bank.