Why Does Money Have Value? (Hint: It's More Than Just Paper)

6 min read
February 2, 2025

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Published on February 2, 2025

Here's a thought that'll keep you up at night: that crisp $20 bill in your wallet? It costs about 12 cents to make. Yet somehow, you can trade it for a decent lunch, a magazine, or enough gas to drive across town. That's either the greatest magic trick in human history, or the most successful collective delusion we've ever pulled off.

Spoiler alert: it's actually both.

When Cows Were Currency (And Other Economic Nightmares)

Before we convinced ourselves that colorful pieces of plastic were valuable, humans had to get creative about trade. And by creative, I mean absolutely ridiculous.

Picture this: you're a farmer in ancient Mesopotamia, and you want to buy a new cart. But the cart-maker doesn't want your grain—he wants a goat. So you have to find someone who'll trade grain for a goat, then haul that goat across town, hoping it doesn't decide to make a break for freedom along the way. Meanwhile, the goat is eating your profits and probably plotting your demise.

Or consider the folks on Yap Island, who decided that massive stone wheels—some weighing more than a car—made excellent currency. Nothing says "convenient shopping experience" like needing a crane and a building permit every time you want to buy groceries.

My personal favorite has to be the cultures that used cowrie seashells as money. At least when your savings account got wet, it just made your money shinier.

The Great Canadian Plastic Revolution

Fast-forward to today, and we Canadians have achieved peak money evolution: our bills are made of polymer that's practically indestructible. You can put a Canadian $20 through the washing machine, and it comes out looking better than most people do after laundry day.

But here's the mind-bending part: this piece of plastic that costs pennies to produce can buy you a decent meal at Tim Hortons. Why? Because we all collectively decided it could. It's like the world's most successful game of pretend, except the stakes are your mortgage payment.

The Bank of Canada could theoretically print a trillion-dollar bill tomorrow. Physically, it would cost the same 12 cents to make. But it wouldn't be worth a trillion dollars unless we all agreed it was—and frankly, Canadians are far too polite to go along with that kind of monetary showboating.

The Trust Fall of Economics

Money is essentially a giant trust fall exercise involving 38 million Canadians. Every time you accept a $50 bill, you're betting that the next person will also believe it's worth $50. It's a chain of faith that stretches from coast to coast to coast.

This trust isn't just warm fuzzy feelings, though. It's backed by some pretty serious infrastructure:

The Government Promise: Ottawa essentially says, "We guarantee this colorful plastic is worth something, and if you don't accept it for debts, we'll get cranky." That's a paraphrase, but legally speaking, it's surprisingly accurate.

The Bank of Canada's Magic: They control how much money gets printed, which is like being the DJ at the world's most important party. Too little music (money) and nobody dances (economy stagnates). Too much music (money) and the neighbors complain about inflation.

Legal Tender Laws: This is the "you have to take our money" rule. It's why you can't pay your taxes in Bitcoin, Pokémon cards, or that collection of vintage bottle caps you've been saving.

When Trust Goes Wrong (Spoiler: It Gets Weird)

Sometimes this whole "trust in money" thing breaks down spectacularly. Take Germany in the 1920s, when inflation got so bad that people were literally bringing wheelbarrows full of cash to buy bread. The money still existed, but trust in its value had evaporated faster than water in the Sahara.

Or look at Zimbabwe in the 2000s, where they printed a 100 trillion dollar note. Yes, trillion with a T. It was worth about enough to buy half a loaf of bread, assuming you could find someone willing to accept it who wasn't laughing too hard to make change.

These aren't abstract economic disasters—they're what happens when the collective agreement about money's value falls apart. Suddenly, your life savings become expensive wallpaper.

The Digital Plot Twist

Just when we thought we had money figured out, along came digital payments to make everything even more abstract. Now you can buy coffee by waving your phone at a machine, transferring numbers between computers without any physical money changing hands.

It's like money evolved from heavy stones to paper to plastic to... pure thought? Your bank account is essentially just a very important spreadsheet that everyone agrees to take seriously.

Cryptocurrency took this abstraction to its logical extreme: money that exists only as computer code, backed by nothing except mathematical algorithms and the collective belief that solving really hard math problems should be rewarded with digital tokens.

Even I have to admit, explaining Bitcoin to my grandmother was harder than explaining why she couldn't pay her property taxes with homemade preserves.

The Canadian Advantage

Here's where being Canadian gives us a leg up: our money is boring, and boring is beautiful when it comes to currency. Our government is stable (if occasionally dramatic), our central bank is competent (if occasionally cryptic), and our bills are virtually indestructible.

Plus, we've got the loonie and the toonie—coins with actual nicknames that people use without irony. Try getting Americans to affectionately call their dollar coin anything other than "that thing we tried once and immediately forgot about."

Our monetary system works because it's built on the most Canadian of foundations: mutual trust, reasonable expectations, and the shared understanding that we're all in this together. It's like a nationwide potluck where everyone brings something useful and nobody tries to hog all the butter tarts.

The Bottom Line (Literally)

Money has value because we believe it does, and we believe it does because it works. It's a circular logic that would make philosophers dizzy, but it's been working for thousands of years.

That $20 bill in your wallet isn't valuable because of the materials it's made from—it's valuable because of the collective agreement that makes it spendable. It represents trust, stability, and the shared fiction that makes modern life possible.

So the next time someone tells you money isn't real, remind them that neither is the alphabet, the calendar, or the rules of hockey—but they're all pretty useful anyway.

The magic of money isn't that it has inherent value. The magic is that we've all agreed to pretend it does, and somehow, that pretending has built civilization.

Not bad for a 12-cent piece of plastic, eh?

References

Books on Money and Economics:

Government Sources:

  • Bank of Canada, "The Life of a Bank Note" and "Monetary Policy Framework"
  • Bank of Canada Museum, "Currency Evolution Exhibits"
  • Global Affairs Canada, "International Monetary System Reports"

Research:

  • International Monetary Fund, "The Future of Money" Research Papers
  • Personal experience trying to explain digital currency to relatives

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