To start, the only real measure of value is human energy. We see this through the following example. To determine how much a service, asset, or note is worth. We ask our selves how much someone is willing to work for it. This principle applied to an open market is what determines value.

Following this, is understanding that the United States uses a FIAT based currency. All that means is, to pay back debts to the central bank and to pay taxes in the united states you need to use the federally distributed USD. That gives the USD its utility in terms of what it can be used for. Being that Taxes and Loans are at the heart of the American economy. All entities operating in the American Economy find this utility a necessity.

The USD then becomes a gift card to the American Economy. All operators outside the United States know that if you wish to buy something in America it can be done with USD. Being that virtually anything can be bought in the American Economy, USD is like having a gift card to the store that sells everything. This is what gives the USD its value all over the world and is why most transactions even between countries, is done using the USD. As it is understood that as long as America is around and is not compromised in any way the USD is tradable for most goods and services.

The exact value of each dollar is determined by the amount of assets and financial assets held by the reserve. Asset value and interest rates (financial assets) are determined on the open market, as the private markets can take or decline loans and purchases. This means that the amount of work people are willing to do to acquire an asset. Determines the price of the asset, and since the asset itself is what backs the dollar. The dollar and its determined value is backed by willing labor.

To Inflate the dollar the reserve simply over pays for assets or gives loans with very low interest rates. To deflate the dollar the reserve uses pre agreed upon contracts with the private sector (incentivized), to force buy backs. Draining the dollar amount in circulation, which after time and reserved asset appreciation causes deflation to the dollar.

Why the reserve would want to inflate or deflate the dollar, is to induce market productivity. Understanding that to deploy capitol is to deploy human productivity. Then holding money in the bank, causes a slow down in market productivity. To counter this, the Federal Reserve inflates the dollar making it more worth it to deploy it now.

Another reason is that financial institutions love to leverage themselves way into the future. If left to their own devices they would probably leverage themselves based on speculated value way into the future and eventually oblivion. Forcing their periodic liquidity through forced buy backs, is a way of regulating them into reality. Making them face the music of today.