Until recently what we call money, be it a piece of paper or a bookkeeping entry or a physical object, has been linked to a physical commodity which put some limit on a sovereign's ability to inflate the currency. The nature of the commodity varied with the interests of the people using it. American colonists used tobacco money. American Indians favored the cowrie shells or wampum, and of course the more familiar copper, gold, and silver still circulate in the world. The link between commodities and money became slowly attenuated overtime. On March 6, 1933 President Franklin D. Roosevelt issued a proclamation prohibiting American citizens from holding gold. The Congress followed on June 5 that year by passing a joint resolution repudiating the gold clause in all private and public contracts. While other actions were taken to weaken the tie to gold, the final blow was administered on August 15, 1971 when President Nixon terminated the convertibility of the dollar into gold and the era of floating exchange rates began.

In today's world the value of a currency is determined by the price that the market will pay for it in exchange for some other currency. Indeed the market is no longer a geographic location; instead it is more than 200,000 computer screens in hundreds of trading rooms all over the world all linked by an electronic infrastructure. The latest political joke, the newly released GDP figures, or the statement of some world leader appears instantly on all screens and the traders vote by buying and selling currency.

This is not to say that governments can no longer influence the value of their currencies. But their ability and those of their central banks readily to manipulate that value in world markets is declining. Increasingly currency values will be experienced less as a power and privilege of sovereignty than as a discipline on the economic policies of imprudent sovereigns.