The Economic Way of Thinking 13th Edition by David Prychitko, Peter Boettke, Paul Heyne

Exercise 12

The textbook says that the paper currency in a society does not have to be "backed" by anything else into which it can be converted on demand in order for it to have value and function as a medium of exchange. The only requirement is that people accept it as a medium of exchange.
(a) Do you think that Federal Reserve notes would ever have acquired acceptability at the time they began to be issued if they had not been redeemable in gold or silver?
(b) What can governments do to make the paper money they want to issue acceptable to the general public, in addition to promising to exchange it on demand for some other asset that people value?
(c) What could cause government-issued paper money that is accepted by everyone in the society as a medium of exchange to lose acceptability and to cease thereby to function as money?