What is the Fiat Money System?
The Fiat money system is more less a government-issued currency. That really isn’t backed by a physical commodity, such like precious metals. More less the numbers are just based on what the government determines.. The value of fiat money is supposed to be based on supply and demand and the balance of the present government, rather than the worth of a commodity backing it as is the case for commodity money. The majority of modern paper currencies are fiat currencies, including the Canadian dollar, U.S. dollar, the euro and other major global currencies.
Take in mind that the word "fiat" comes from the Latin and is often translated as the decree "it shall be" or "let it be done."
Key Thoughts
Fiat money is government-issued currency that isn't backed by a commodity such as bronze.
Fiat money gives governments' central banks greater control over the economy because they control how much currency is created.
One problem of the fiat system is that governments will print too much of it, resulting in hyperinflation.
How The Fiat Money System Works
The Fiat money system only has value because the government maintains that value, or because two parties in a transaction agree on its value. It is mainly your perception of value that determines a money system. Which is something that is forced upon the people to actually believe.
Historically, governments would print coins out of a valuable physical commodity, such as gold or silver, or print paper money that could be redeemed for a set amount of a physical commodity. Fiat money is a inconvertible idea and can never be redeemed.
Keep in mind that fiat money is not linked to physical reserves, such as precious metals. Therefore the risk is to lose value due to inflation or even becoming worthless in the event of hyperinflation. When the citizens lose confidence in their government's currency, the money will no longer hold value. This can be different from currencies backed by a precious metal. It has intrinsic value because of the demand for gold in jewelry and decoration as well as the manufacture of other goods and services.
Look at that the U.S. dollar. It is considered to be both fiat money and legal tender, accepted for private and public debts. A thought on legal tender is basically any currency that a government declares to be legal. Many governments issue a fiat currency, then make it legal tender by setting it as the standard for the methods of payment for all.
In history of the US, the country's currency was backed by gold (and in some cases, silver). The federal government stopped allowing citizens to exchange currency for government gold with the passage of the Emergency Banking Act of 1933. The gold standard, which the U.S. backed as currency with federal gold, ended completely in 1971, when the United States also stopped issuing gold to foreign governments in exchange for U.S. currency. Since that time, U.S. dollars are known to be backed by the "full faith and credit" of the U.S. government, "legal tender for all debts, public and private" but not "redeemable in lawful money at the United States Treasury or at any Federal Reserve Bank," as printing on U.S. dollar bills used to claim. In this sense, U.S. dollars are now "legal tender," rather than "lawful money" which can be exchanged for gold, silver or any other commodity.
So more less a history of truth I am just saying.
Pros and Cons of Fiat Money
Fiat money serves as a good currency if it can handle the roles that a nation's economy needs of its monetary unit: storing value, providing a numerical account, and facilitating exchange.
The use of Fiat currencies gained popularity in the 20th century in part because governments and central banks sought to insulate their economies from the worst effects of the natural up’s and down’s of the business cycle. Since fiat money is not a scarce or fixed resource like gold, central banks have much greater control over its supply. This gives them the power to manage economic variables such as credit supply, liquidity, interest rates, and money velocity. A good example of a vision is the U.S. Federal Reserve has the dual mandate to keep unemployment and inflation low.
Let’s go back to the 2007 and of the housing crisis that happened. There was a major wake call. In the thoughts that central banks could necessarily prevent depressions or serious recessions by controlling the entire money supply. A currency tied to gold, for example, is generally more stable than fiat money because of the limited supply of gold. The creation of bubbles is so much creating and inflation with a fiat money due to its unlimited supply vs using a system that is limited such as Bitcoin.
The African nation of Zimbabwe provided an example of the worst-case scenario in the early 2000s. In response to serious economic problems, the country's central bank began to print money at a staggering pace. That resulted in hyperinflation, which ran between 230 and 500 billion percent in 2008. Prices rose rapidly and consumers were forced to carry bags of money just to purchase basic staples. At the height of the crisis, 1 trillion Zimbabwean Dollars were worth about 40 cents in U.S. currency. Also look into the situation with Venezuela. A big story there but a great example of what happens if you keep printing out the money system.
In general we are stuck in this fiat system and all in the world economy. All is connected to one another. We are seeing the trickle down effect of the failure of the money system. Communities are now cutting back on services dues to the issues of the money supply. Which is effecting the people as well. You should see now that your earnings are going much lower then they used to. Value of your goods and services keep going up, because value of your dollar keeps down down. More less that is inflation.
Think about that. What do you think of the current money system? Are we in a crisis? Should we all be alarmed and concerned?
Let’s hear what you think. Thank you.