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Why Is a Dollar a Dollar?

A dollar isn’t always worth the same. Here is why.

Why is a dollar worth a dollar? The short answer: it just is. The dollar bill you have stuck in a box in the back of your sock drawer has no real value. It, in and of itself, is a piece of fabric—yes, fabric—with some ink. That’s it. Fractions of a penny at best. It’s value is determined by demand. There’s a bit more, so keep reading to find out.

It’s not always worth a dollar.dollar

The actual value of a dollar changes. It changes with inflation—that’s when the cost of goods goes up. The value of a dollar can also change relative to other currency (that is other countries' money).

So on its face, it is still worth a dollar, but how much you can buy with that dollar can go up or down. It’s totally normal and all money does this, so don’t worry.

Has the dollar ever had a real worth?

Yes, sort of. Up until August of 1971, money in the U.S. was no longer defined by gold. It used to be that for every dollar issued by the federal government, there was an equal amount of gold held in reserve to back that dollar.

You can still exchange money for gold, it is just that the government does not hold an equal ratio any more.

Where to see the change.

If you want to see the change of the value of a dollar, you don’t need to go any further than your parent’s car. More specifically, look at the price on gas station signs. Gasoline changes price depending on supply and demand, like everything. How much fuel can be bought with a dollar changes all the time, probably why the signs in front of gas stations are digital, so it can be done instantly.

So what is the answer?

A dollar is technically always worth a dollar. But what that dollar is worth compared to other things changes. Since our economy is based on supply and demand, if there is more supply than demand, dollars lose their value. The opposite is true if there is more demand than supply. And there are thousands and thousands of things that this can be compared to. Like maybe last year you convinced your friend to eat a bug for a dollar. But this year they won’t do it for less than two dollars. Don’t make your friends eat bugs.

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