Money exists mostly in our imagination.
Yes, there are these green rectangles of paper with round numbers printed on them and all these documents listing what we owe, own and earn.
These are tangible objects we can feel with our senses and call them real, but money is imaginary and its value completely relative.
Money is Trust, Value is Beliefs.
Only 4% of Money is Cash
With the advent of electronic banking, most of the money does not even exist in an actual physical form. As Ray Dalio explains it very well, only 4% of the money in the US economy is printed cash. 96% is under electronic or paper form.
That is 96% of the money is even more fictive. A global computer crash would completely erase the US economy. (that was part of the plot of the movie Fight Club).
What is real is the Belief we have in these green rectangles of paper and these screen statements. Money exists only because we agree to believe in it.
Money seems natural and real because enough people believe in it.
Almost everyone on the planet agrees that a piece of paper or a chunk of metal with some special mentions on it can be used to exchanged goods and services. It is so ingrained in the culture that we often have to actually unlearn its use and rediscover other forms of exchange, like barter, sharing, pooling.
Paper Money - Literally
Many parallel systems also exist, many apps, websites and video games deal with Units or Credits. The advent of the Bitcoin is another example that money can be created out of nothing but just sheer will and shared belief.
When I was a kid in Italy in the 70s, in the small village where we were living, it was common practice for storekeepers to write down an amount on a scrap of paper and just stamp or sign it when they did not have change to give back.
You could use the piece of paper at any other shop in the village, it was as good as government money.
Money is trust.
For those who remember it, telephone booths and subway turnstiles had their own tokens, which could also sometimes be used as currency. In the past, some businesses accepted postal stamps as mailed payment from people without a checkbook.
Local currencies are not so much of an oddity, Disneyland has the Disney Dollar, Arizona has its own Dollar. Ithaca in New York state has the Hour (as in Hour of Work), like many local communities in the US and abroad.
It all starts with people accepting, agreeing and believing in this new tool for exchange. Local currencies are often mocked as anti-capitalist initiatives from nostalgic liberals but they are just a reduced representation of the real thing.
Ecuador is a nation of 16 million which currency, the Sucre, disintegrated in one week after a troubled history. People stopped believing in their own currency and adopted the US dollar. History is full of such examples, the Papiermark of Germany, the Argentinian Peso, the Zimbabwe Dollar... A currency fails when people no longer believe in it or agree about it. Money is trust.
A paycheck is a promise. By working, you believe the guy who promised to pay you. You both trust the other to deliver.
A check is a promissory note. You put on paper a promise that you will pay this money back to the bank once the bank has given the money to the recipient. You make a promise. Both the bank and the recipient believe you.
When you borrow money from the bank, you sign also a promissory note. You make a promise to pay the money back. A mortgage is a loan backed by a real asset. If you break your promise, you give up the asset.
It is all about promising and trusting (or not trusting) each other.
The lack of trust is immediately apparent.
If a foreigner would offer you a bill in his currency, that piece of paper as no value to you because nobody else around you would give you services or goods in exchange for it. Nobody else would believe in it. It would have no value. It is not even money to you. At best you would see some exotic, decorative value or maybe you would know someone who collects monies from around the world, but that is about it.