I often run into people repeating the meme that supply and demand are the only sources of value of fiat money exactly like in the case of cryptocurrencies or other unofficial mediums of exchange. Let's just set the record straight and say that official currencies (fiat currencies) derive much of their value from the fact that they are legal tender, which means that there are
- governments that demand taxes to be paid in them and that
- legal tender must be accepted as valid for meeting a financial obligation.
In short, legal tender has the government and its potential for violence to back it up.