FIAT – what is it really!
QUESTION: Governments create their own sovereign fiat currency, among other things, to facilitate trade. Thus, counterfeiting is punishable in some countries by death or at least imprisonment. The currency must be inviolable, created under the most severe conditions. So what do you do when your own government is dealing with what is essentially an officially approved fake? I mean, “money” has become almost meaningless, unless you’re the recipient. For non-insiders like me… buy PM.
REPLY: I always have trouble with this misinformation that the only money is gold and paper dollars are worthless paper money that has rebuilt the world many times since 1861 and the introduction of the paper dollar.
The gold bug propaganda that so many lost so much was that gold is a hedge against inflation. When gold coins were money in the 19th century, their purchasing power rose and fell just like any paper currency. These people are selling fiction like a used car dealer just to sell their product. Honestly, it doesn’t matter what money is. It’s always just a derivative of barter. I give you this for this. You will accept paper money because you know others will accept it from you. The woman tried to $20 gold coins at Walmart and they refused to accept it because they didn’t know what it was. She then took them back and exchanged them for $20 bills.
Try going to Starbucks, spending a $20 gold coin and asking for change. If the seller doesn’t know what it is, they will refuse. MONEY has always been nothing more than a belief system. That’s all!
FIAT means simply by arbitrary fiat. Just because the currency is gold or even silver, NO make its value intrinsic. Governments have devalued their coins and reduced their weight, declaring that their value will be what they tell them to be. I wrote about how Japan did it, and in the end people refused to accept Japanese coins and stopped minting them for 600 years.
The Romans reduced the weight of their silver coins from 6.5 grams to 4 grams, and it was only because they defeated the Greeks that the Roman monetary system became standard.
During the American Revolution, people adopted the continental currency. Money has always just been based on what people will accept.
Gold has no value unless the other person also believes it has value. Gold or silver is by nature no more valuable than a paper dollar or a sack of rice, unless people have agreed that they are a valuable medium of exchange.
This is true. Everything else is propaganda. For millennia, money has been different things, from shells to cattle and even slave girls.
Saint Patrick in the 5th century AD upon his arrival in Ireland discovered that MONEY expressed in human slave girls. He wrote in his confession, “I think I gave them no less than the price of fifteen people.” This passage shows something very important. First, MONEY not defined as Exchange environment exclusively. It also serves a purpose Unit of account. It becomes a true function MONEY even more than what it is. MONEY it is the language of value.
FIAT is when the government dictates that there is something and it will be a central bank digital currency. But if everyone accepts it, then it becomes a medium of exchange.