home There is no need to for the monetary authorities to keep gold or anything else as a reserve. Some people say that money which is not backed by gold or something like gold is fiat money and has no value. This is not true. Most currencies should be called tax-backed money. The currency has value because you can use the currency to pay your taxes. There is a description of how taxes give value to paper money in the description of the Mississipi scheme in the book Extraordinary Popular Delusions and the Madness of Crowds by Charles Mackay. After the death of king Louis XIV, the government of France was bankrupt. The government paid the army in paper money, but demanded that taxes be paid in gold. The army was mutinying because the paper money was worthless. John Law advised the government to accept paper money as payment for taxes, and this made paper money valuable. Farmers were willing to trade their produce for paper money because farmers needed paper money to pay their taxes; and this meant that anyone could buy stuff with paper money.