Tricky question.
In a layman explanation.
Once upon a time we had barter trade. Trading by exchanging things by things on hands. Now what if I have 1 cow and i want to trade this 1 cow for only 1 goat. Since 1 cow and 1 goat aren't worth the same. Cow worth's higher than goat. So I need 1 goat and remaining value of my cow i.e the change. I don't want anything, I just want a goat and the remaining value. How would I be paid?
In early days if you had much golds you're a rich. So gold didn't solve the scenario above of barter trade.
The idea of money came in our heads. What we need is something that will trade things at different values and the remaining changes, hence making life simple. Just a single paper in pocket worth cows, car and a house.
How would the first money worth? Well do we have something very rarely and highly valued than other things? Yes it's Gold.
How do we value a single paper per gold?
Just make $ 1 paper per 1 milligramme of gold (just an example, not really how it works). That means 100 mg of gold and you have $100 in pockets.
You seeeeeeee!
If a cow worth $3, it would need me 3 mg of golds, now I'll give only $3 of paper money instead of golds and get my changes back.
Printing bunch of paper $ thinking you'll wake-up a rich is a dumb idea, it doesn't mostly work. Zimbabwe and Venezuela tried and failed.
Imagine a country prints trillions of paper $ and procure to every citizen in the country. Now everybody has $1000 in their pockets without sweat, I mean easily you get $ without production!. All of people need is rice to survive. It used to cost $1 for 1 kg of rice. Everyone has money now everyone will need to buy tonnes of rice and put them at their homes. Rice will be scarce in the market. Demand of rice will rise and hence firms and farmers will need to hire workers to work harder and produce more rices. Workers will demand high wages. And hence firms won't stand longer paying higher wages to rice producers. Now firms will consider raising the price of 1 kg of rice to $ 10. It's a hide and seek game😀😀.
Value of the currency drops (PPP). I mean PPP of rice in China may be is $0.5 but yours is $10.
You wanna buy rice in China by your currency you'll need 10/0.5 = 20 PPP of your currency. 😅
As long as your government continue printing more moneys without considering its gold reserve, imports and exports its economy will crush.
Economy of the country grows by making things, selling them and of course the currency's value is determined by gold reserves. Gold is rarely and valued thing you know.
