What is fiat money?
To understand the difference, one must first properly understand what a fiat currency is. The first misunderstanding starts with the fact that many think that currencies such as USD, EUR or PHP are backed by gold, oil or other goods. But that's not true. The fiat currencies are not backed by anything. It used to be that way, but it was lifted in 1976 at the latest. Everyone can read it here:
https://en.m.wikipedia.org/wiki/Gold_standard
In reality, the fiat money is created out of thin air at the banks (especially central banks, but also private banks). This money is lent to other banks, companies, governments or private individuals in the form of loans. You can read more about this here.
https://en.m.wikipedia.org/wiki/Money_creation
Because this article is quite complicated and maybe not everyone can understand it, to simplify matters, one can say that fiat money is nothing other than debt. The money that you have in your account, or as a banknote, is nothing more than the debt of someone who has taken out a loan.
What's the problem with the fiat money? There is very, very much of it because there is so much debt. There are many countries that are very indebted. USA is very indebted, many countries in Europe are very indebted, Japan is very indebted. Countries have to repay the debt, but they don't have the money to do it. So what are they doing? They take on new debts to pay off old debts. This is called a debt spiral. The result: more and more fiat money is being created.
Such phenomena have happened many times in human history. Most of the time, they end in hyperinflation and creating a new monetary order. The old money is largely declared invalid. The government can void the money overnight (it happens without notice, of course, so people don't immediately spend the old money as long as it is worth something)
Will it happen this time? Nobody knows, but it is likely.
What is fiat money?
To understand the difference, one must first properly understand what a fiat currency is. The first misunderstanding starts with the fact that many think that currencies such as USD, EUR or PHP are backed by gold, oil or other goods. But that's not true. The fiat currencies are not backed by anything. It used to be that way, but it was lifted in 1976 at the latest. Everyone can read it here:
https://en.m.wikipedia.org/wiki/Gold_standard
In reality, the fiat money is created out of thin air at the banks (especially central banks, but also private banks). This money is lent to other banks, companies, governments or private individuals in the form of loans. You can read more about this here.
https://en.m.wikipedia.org/wiki/Money_creation
Because this article is quite complicated and maybe not everyone can understand it, to simplify matters, one can say that fiat money is nothing other than debt. The money that you have in your account, or as a banknote, is nothing more than the debt of someone who has taken out a loan.
What's the problem with the fiat money? There is very, very much of it because there is so much debt. There are many countries that are very indebted. USA is very indebted, many countries in Europe are very indebted, Japan is very indebted. Countries have to repay the debt, but they don't have the money to do it. So what are they doing? They take on new debts to pay off old debts. This is called a debt spiral. The result: more and more fiat money is being created.
Such phenomena have happened many times in human history. Most of the time, they end in hyperinflation and creating a new monetary order. The old money is largely declared invalid. The government can void the money overnight (it happens without notice, of course, so people don't immediately spend the old money as long as it is worth something)
Will it happen this time? Nobody knows, but it is likely.