> This actually helps explain the rather puzzling behaviour on the part of royal courts: after all, since kings usually controlled the gold and silver mines, what exactly was the point of stamping bits of the stuff with your face on it, dumping it on the civilian population, and then demanding they give it back to you again as taxes? It only makes sense if levying taxes was really a way to force everyone to acquire coins, so as to facilitate the rise of markets, since markets were convenient to have around.
And that's still a very good story for the "backing" of our modern currencies. Apart from the effects of having stable equilibrium, i.e. everyone excepts currency because everyone else does--which is probably the much bigger effect in anything but the very long term.
Yep, you can use anything you want as currency, but your government wants paying in the currency it prefers, and since you have to have some of that for them anyway, why not use it everywhere else too?
Another factor is that the world trades oil in USD. So you want to have some of your local currency and some USD around... That's why the dollar is the reserve currency of choice.
> This is not because [kings] are hostile to markets. On the contrary, they normally encourage them, for the simple reason that governments find it inconvenient to levy everything they need (silks, chariot wheels, flamingo tongues, lapis lazuli) directly from their subject population; itβs much easier to encourage markets and then buy them.
> This actually helps explain the rather puzzling behaviour on the part of royal courts: after all, since kings usually controlled the gold and silver mines, what exactly was the point of stamping bits of the stuff with your face on it, dumping it on the civilian population, and then demanding they give it back to you again as taxes? It only makes sense if levying taxes was really a way to force everyone to acquire coins, so as to facilitate the rise of markets, since markets were convenient to have around.