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Compound interest is the reason all fiat currencies eventually end up being worth what they are - paper (it might be electrons this time around, we'll see).

In the long history of civilised humankind, there has not been a single paper currency that has not burned over time. All money that is backed by fiat (paper currencies) end up worthless at some point.

As an example, assume that a fiat currency actually stood the test of time and remained in circulation for 2000 years.

Just think of how much you'd have if you deposited 1 cent of this fictitious money when BC turned to AD (in other words, 0 CE) into an interest bearing account.

If the interest rate was a mere 1% pa, in the year 2000, you would have $4.3 million. Not too shabby.

If the interest rate was, say, 3% pa, by the year 2000, you'd have a something like $4.7 x 10^25. That's ... ahem ... a very big number.

And you wonder why there hasn't been a single paper currency that has lasted near that amount of time.

rewritten April 5th, 2002.