&gt; &gt; many things would work exactly the same if people agreed to pretend that gold was moved from one vault to another instead of actually physically moving gold around.<p>&gt; This is how commodity money works.<p>No, its how <i>representative</i> (or commodity-<i>backed</i> money) works, as distinct from commodity money.<p>&gt; The dollar (as well as almost all paper currencies) originated as commodity money.<p>The dollar (whether you mean the US dollar or its Spanish predecessor) originated as commodity money -- actual silver coins -- true. But most paper currencies (including the -- later -- paper dollars) originated as representative, commodity-backed, money.<p>&gt; The paper dollar was backed by and convertible to gold.<p>The original dollar was silver. The original paper dollar was ... a trickier question. If you count the 1861 demand notes as &quot;paper dollars&quot;, then, as they were initially redeemable for gold (as the US had switched from a silver to a gold standard) money, they were convertible to (redeemable for) gold -- but they were not <i>backed by</i> gold (and redemption was soon suspended.)<p>If you mean the first legal tender paper dollars (U.S. Notes) issued soon after the 1861 demand notes, they were pure fiat currency, not backed by or convertible to anything.