Money itself does not have any inherit value, its just simply a piece of paper or numbers in a ledger. Things have value as they are useful. In the past, people could exchange gold or silver with coins depending on the exchange rate set by the goverment. Money is valuable as it is a good with a limited supply and there is a demand for it because people want it. People will not sign into profitable deals which involve future payments because they’ll be unsure what the value of money will be when they get paid.

when money becomes less valuable relative to those other goods, things like,


The supply of money goes up.

The supply of other goods goes down.

Demand for money goes down.

Demand for other goods goes up.


If a natural disaster destroyed stores but left banks intact, we’d expect to see an immediate rise in prices, as goods are now scarce relative to money.


So, money is actually just a piece of paper with value in it, people with money can buy everything, while on the other hand, people with no money cannot buy any. What if there is one day money just becomes a piece of useless paper, what will become of the world?


Source: http://economics.about.com/cs/neoclassical/a/value_of_money_3.htm