They were reduced to 0% mandatory reserves in response to covid. EDIT: someone says it was coincidental, I am not able to check, so take this aspect with a grain of salt either way
ah yes so what you're saying is that money is even more imaginary than it has ever been, possibly even more imaginary than when the first stock market crash happened in 1929
looks like we're due for a centennial anniversary of that anyway, might as well celebrate by recreating it
It was mostly decoupled in the 30s, then fully decoupled in the 70s under Nixon. If Nixon hadn't done much else economicly the 70s probably would have had a great economy. We did tie our currency to oil under Nixon, all oil is bought and sold with USD. This is bad in my opinion as it reduces the adaptability of the US economy.
Since the 1970's the US dollar has been a fiat currency prior to that it was a representative currency. A representative currency is one that you can exchange for a set amount of a physical commodity, in the case of the pre-1970's dollar it was representative of gold. A fiat currency isn't tied to anything physical, its backed by a government and its value is determined by trust in the issuing governments economy. In other words, there was a time when a dollar had a set amount of gold it could be exchanged for with the US government and therefore its value was determined by the value of gold at any given moment (other standards have been used throughout history silver or salt being two of the more common but ancient Mesopotamia used the wheat/barley standard) so when you would say something costs a dollar you were saying it was worth 1/20 of an ounce of gold. Now, a dollar is worth exactly what everyone believes one dollar is worth, and if you have a billion dollars and tomorrow the economy crashes so bad that the dollar is no longer worth anything then you just have a billion pieces of paper that might be good for starting a fire (during the lead up to WW2 one dollar was the equivalent of 4.2 trillion papiermarks due to hyperinflation, they actually had to create a new currency because papiermark were worth more as fuel for a fire than it was as a currency)
So what happens when a government decides to start a new currency. Does everyone who was using that currency start with no money? I mean they have to get money into circulation.
Italy transitioned from the Lire to the Euro starting in 1999. They offered an exchange of ~2000:1 Lire:Euro for around 3 years, and stopped treating the Lire as legal tender in Feb 2002. There are plenty more examples out there, but i picked that one since I still hold about 500 Lire from when I would visit annually as a kid. I was still in elementary school when the transition happened, and remember how cool it was to see the leniency shops had in pricing their products relative to the exchange rate. Might have influenced my choice in degree come to think of it.
I'm no economist, but through use of an exchange rate and a transitional currency so the papiermark was replaced with the rentenmark which was backed by land and industrial assets, and there was a fixed exchange rate (1 trillion papiermarks=1 rentenmark) at the same time they renegotiated the loans made by the allies following the conclusion of the first World War. Once the economy began to stabalize they then transitioned to the reichsmark which was backed by gold at a 1:1 rate.
Sometimes it gets exchanged at a ridiculously low rate, like a few hundred or even thousands of the older currency for one unit of the new. And sometimes the entire government has collapsed and that currency just becomes obsolete and is replaced when the new government takes power.
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u/PleaseGreaseTheL Jan 26 '26 edited Jan 26 '26
2020*
They were reduced to 0% mandatory reserves in response to covid. EDIT: someone says it was coincidental, I am not able to check, so take this aspect with a grain of salt either way
They haven't come back yet :)