The fact is that it is backed by the guns of the army and police.
For example - I was in Odessa, Ukraine when the banks closed and the credit/debit cards didn’t work. Cash only for a few days. And the desired currency was either the US dollar or the Euro. The shops and stores refused to take the Ukraine Hryvnia because it was falling in value.
Then a funny thing happened that I witnessed personally- an armed cop walked into a store and ordered the manager to take his hryvnia for food.
LESSON - whatever crazy currency the police are paid in will become LEGAL TENDER. Why? Cops have to feed their families and will enforce it.
You are talking about the same Ukraine where all the farmers were systematically expropriated and starved by Stalin? That Ukraine?You are of course correct in the very short run. But those police came back a second time to find the shelves bare, I make no doubt. Because the merchant has to buy his merchandise, and if forced to sell below cost will promptly stop buying merchandise.
So your experience didn’t happen.
</sarcasm> What must have happened is that the Ukraine somehow got backing for its currency so that people were able to trust its scarcity/value.
If you really think about it, what sustains the value of any currency is advertisements of goods on offer in “barter” for that currency.