We accept dollar bills (paper currency) as the medium of exchange because
we have confidence that the dollar bills will be accepted by others.
of historical and practical reasons.
Historically, the use of paper currency began in China during the Tang Dynasty (7th century) where merchants would deposit their metal coins with a trustworthy person and receive a paper receipt. These receipts were then used like cash and became the first form of paper money. From there, the use of paper money spread to the Middle East and Europe before eventually being adopted in America.
Practically, paper currency serves as a convenient and portable method of payment. Compared to coins or other forms of payment, paper currency is lightweight, easy to carry and counts as legal tender for most transactions. Additionally, the issuing authority (in the US, the Federal Reserve) can control the money supply by printing more or less currency to stimulate or cool off the economy.
Overall, the use of paper currency has become a common and accepted medium of exchange due to its historical development and ease of use for both consumers and businesses.
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