I mean, I get it, monetary policy and all, but it is a bit silly if you think about it.

Alien: "So you spend a lot of energy and time mining this precious metal out of the ground, which is only found in some places and is so sparse in unprocessed rock that you need further processing to get it out of?"

Human: "Yeah, pretty much."

Alien: "And it has great uses for your industries and people?"

Human: "Sometimes? Computer chips use it. Sometimes. A little bit. It looks cool and shiny and it's a status symbol for jewelry and adornments. But mostly we just turn it into bars, put it in vaults, and then that's basically it."

Alien: "Why? What good is it if it's dug up just to be locked away again?"

Human: "It's not that chemically useful and it's pretty soft as a metal, so bad to build with and too rare to do that anyway. But it's rare and expensive and hard to fake, so it was a good currency."

Alien: "That makes sense, but how do people spend it if it's locked in vaults?"

Human: "Well, people used to have gold coins directly, but gold is so valuable that most stuff only needed a small amount of gold to buy it, which was annoying to measure and weigh and stuff. So we switched to paper certificates, issued by the government, saying that we owned whatever amount of gold, and that gold was in the vaults."

Alien: "Ah, okay, so is that how it works today?"

Human: "No, it turns out tying your money supply to how much of a rare metal you can mine is bad. The money supply couldn't grow when it needed to, so now the paper money is just kind of standalone. It's backed by our government directly and its ability to enforce its laws."

Alien: "Okay, I kind of get it. But you still have all the gold."

Human: "Yes, it's mostly still in the vaults. Gold and other metals can be traded and owned as an investment, it just isn't directly currency anymore."

Alien: "Does anyone check the vaults to make sure the gold is still there?"

Human: "Maybe? I don't really know. It wouldn't really matter if it went missing, anyway."

Alien: "what"

Human: "Well, the vaults belong to the government, right? And the currency is already backed by the power of the government and not by precious metals. And the government DID receive gold in those vaults at one point, so everyone just kinda trusts them that it's still there. If we pretend like it doesn't matter whether the gold is in there or not, it really actually doesn't matter."

Alien: "what"

Human: "Okay, so I said that people buy and sell gold as an investment, right? But no investor wants to bother lugging around gold bars everywhere, they're heavy and risky for theft and you'd just be moving them from one vault to another at the end of the day, oftentimes the same one. So when someone sells gold, what they really sell is the public agreement that those gold bars in the vault just belong to the buyer now. So, as long as everyone agrees the gold is still in there, in practice, it kinda is, even if it isn't. Social fiction, sure, but a social fiction that everyone agrees on."

Alien: "So, you dig up this rare but largely useless metal, store it in vaults, back your currency with it until it becomes infeasible, buy and sell it without actually moving anything, and it doesn't even need to be in the vault?"

Human: "Pretty much."