Wow, where to begin . . .
There are a lot of non-tangible things that can be exchanged: credit notes, debt securities, liquidated contracts, bank notes, dollars, IOUs, etc. Currencies are only one of a very long list of non-tangibles that can be exchanged. Currencies of large stable nations are handy because their notes are more reliable than notes issued by some guy named Norton. If some guy named Norton puts out notes that are more reliable than a nation, then people will use his notes rather than that nation’s note as a method of exchange, or they may chose both, the way some people once did in San Francisco, or the way some Canadians now do with Canadian Tire coupons. If you prohibit property, then you shut down exchange, for no one will be interested in exchanging notes etc. that are not reliable.
If you have a lot of blueberry muffins, it is not hard to find someone who wants to exchange something for some of those muffins. If you want a 2010 F150, it is not hard to find someone who wants to receive something in exchange for that truck. It is not so easy to find two people in a community, where one person wants to specifically exchange a lot of blueberry muffins for an F150, and the other person specifically wants to exchange an F150 for a lot of blueberry muffins. To solve this problem, we have that long list of intangibles that can be exchanged.
As long as there is enough stability in the system, a person with a lot of muffins can exchange some muffins for a note from one person, some muffins for a note from another person, some muffins for a note from yet another person, until all the muffins have been traded for notes. The muffin man then takes the notes to the person with the F150, and as long as the person with the F150 trusts that all the notes are reliable, an exchange will be made. If the person with the F150 does not have confidence that the notes will be honoured by the various people who made the notes, then an exchange will not happen.
To solve this problem of reliability, we have governments and major financial institutions who’s notes are reliable for the most part, and in any event are a lot more reliable than most individual’s notes. Quite simply, the odds of an American dollar not being honoured are a lot less than an individual’s cheque not being honoured. Since most people trust the notes issued by stable governments, it is a lot simpler for the muffin man to insist on receiving government notes from the people who receive his muffins that to accept individuals notes, for he knows that there is a much greater chance that the person with the F150 will exchange it for government backed notes than for notes from people whom the person with the F150 does not know and has no reason to trust.
There is no law that requires people to only exchange government notes. People exchange government notes because government notes are the most trustworthy intangibles that can be exchanged. People exchange intangibles because that makes it possible to make exchanges without hauling goods over distances, and without having to go through multiple exchanges to eventually obtain the item that was eventually sought. In short, people trust the major international currencies far more than they trust AHunter3 IOUs for a method of exchange.
