Q: How is it that our government can print something on paper, and we use it as money?
A: Good question! Money is basically something we can exchange for either work or tangible goods. Say your co-worker asks you to do his or her work one day so they can take a day off. You’d probably expect that co-worker to pay you back in a similar fashion. You would not need money to accomplish this.
Now imagine that someone you don’t know wants to exchange a guitar they have for a set of bongos that you have (presumably done through an online forum like Craigslist). Again, this barter exchange does not need money. But let’s take it a step further and presume the other guy wants your bongos but doesn’t have a guitar. How do they compensate you for your bongos?
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The buyer needs to offer you something that you value at least as much as you value your bongos. But since they don’t have anything you currently want, they need to be able to give you something that you can exchange with someone else in the future to get something you value. Hence, money!
This “money” that will let you buy something else in the future just needs to be something that others will accept as valuable, too. So, money can be any object that most people would be willing to exchange something they own for.
But whatever the money is, it needs to be durable (and not disappear over time) and somewhat scarce (grains of sand would not make very good money). But if it is too scarce, there will not be enough of it around to serve as a method of exchange over larger populations. If it is easily divided, that is also a plus and it should be both portable and verifiable.
Many centuries ago, certain seashells were used as money between various tribes. But shells ceased to be money when industrial advancements allowed the rapid production of drilled and polished shells, greatly diminishing their scarcity. Precious metals (gold and silver especially) were early types of money and continue to be money centuries after shells ceased to be valued. These precious metals retain value as their supply only increases very slowly by mining.
Now pieces of paper issued by governments (and are hard to counterfeit) are commonly used for money. And even something you can’t touch but can be verified such as a bank account or bitcoin can represent exchangeable money.
Having said all this, the value of any given type of “money” is variable. As noted, shells are no longer considered a method of exchanging value, and many paper currencies have disappeared (think about Confederate dollars at the end of the Civil War). The value of currencies and other types of money constantly fluctuates when compared with each other such as the value of the Euro against the dollar, or the price of gold in dollars.