Relative wages and prices can adjust quickly to shocks through nominal exchange rate movements in order to restore external balance. When the exchange rate floats and there is a liquid foreign exchange market, reserve holdings are seldom required.3 Most fundamentally, floating exchange rates overcome the seemingly innate tendency of countries to delay adjustment.
It facilitates trade, enables transactions, and lubricates the economy. But what does money look like? Is it metal coins, paper banknotes, account entries on bank ledgers, or something completely different? The truth is, it is all of the above, and it keeps evolving.