Is Fiat Money at its End?

If you ask the question whether fiat money is soon at an end, it should first be clarified what exactly fiat money is in the first place. All currencies backed by governments today are referred to as fiat money. This includes the euro, the U.S. Dollar, the Swiss franc and all other currencies equally. 

However, unlike gold, fiat money has no material value of its own; it is a purely nominal value set by a government. From this perspective, what is happening in the financial markets seems to be like playing in casinos. By the way: You can find out where to find the best casinos at Online Casino NZ or onlinecasino-australia.com.

Fiat money gets its value from the government

The moment a government says that a certain piece of paper has a value of, say, $200, it automatically becomes fiat money. 

Thus, money receives its value solely through government power. The situation is completely different with gold, silver or other precious metals, for example. 

They always have their own value without any government decree. Another variant in this context is the cryptocurrency. Here, too, the value is not determined by governments, but solely by supply and demand.

Why today’s currencies are no longer backed by gold

It is always claimed that gold is supposedly the “perfect money”. But if that is so, how can it be that today’s currencies are no longer backed by gold? 

The answer is both easy and worrisome. It is extremely important to governments that they not only have sovereignty over money, but also over the type of money. In this way, the value can be adjusted according to political interests. In this way, it is possible to influence the economy, among other things, and it is also possible to finance wars. 

Here it quickly becomes clear that solid gold money would get in the way of ideological-political projects. For this reason, gold money was unceremoniously replaced by the states’ own fiat money in the early 1970s. 

Gold becomes important in any crisis

It has never been different. Every time the world is shaken by debt crises, terrorism or even by excessive lending, investors distrust both politics and the financial system. Here it is then seen each time that people fall back on the anchor currency of gold, as in earlier times. 

If one looks at fiat money a little more closely, it very quickly becomes apparent that these currencies are mainly characterized by three criteria. 

Criterion No. 1: Fiat money is produced by state-owned central banks, which at the same time hold the monopoly on money production.

Criterion No. 2: The fact is that fiat money has no value of its own at all. It gets its value only from the ink that prints the paper, and likewise from the entries of “bits and bytes” on computer hard drives. In this way, the money supply can be multiplied at will. 

Criterion No. 3: Usually, fiat money is produced by bank lending. That is, these are not loans backed by “real savings.”

The role of investors

For many investors, these facts are changing the way they look at fiat money, as it suffers from both economic and ethical defects. For one thing, fiat money is chronically inflationary and thus loses its purchasing power over time. In addition, fiat money also ensures an antisocial distribution of income and wealth. As a result, economic disruptions are triggered and the indebtedness of national economies is steadily pushed up. 

As a result, this shows a clear reaction of the markets. Here, cryptocurrencies are gaining more and more importance. They can compete with the money function thanks to the blockchain. This web-based, decentrally distributed ledger of accounts opens up a new dimension of transaction possibilities. Most importantly, cryptocurrencies cannot be controlled by governments or banks. This is rightly arousing the interest of many investors.