What is Fiat Currency ? The word “fiat” comes from the Latin and is often translated as the decree “it shall be” or “let it be done”.
In fact, it is a government-issued currency that is backed by a commodity such as gold. For the first time in the world, the Chinese used Fiat currency. Fiat money was also used in Europe during the 17th century, being adopted by Spain, Sweden, and the Netherlands. Over the next two centuries, New France in Canada, the American Colonies, and then the U.S. Federal Government also experimented with fiat money with mixed results. By the 20th century, the U.S. was back to using commodity-based currency on a somewhat limited basis and in 1933, the government ended the practice of exchanging paper money for gold. By 1972, under President Nixon, the U.S. abandoned the gold standard altogether, finalizing its demise on an international scale, switching to the fiat currency system. This led to the use of fiat currency around the globe.
The value of fiat money is derived from the relationship between supply and demand and the stability of the issuing government that is why, when a government collapses, the currency of that government loses its value. Most modern paper currencies are fiat currencies, including the U.S. dollar, the euro, and other major global currencies.
Production of fiat money
Fiat is usually produced to deal with inflation, thus giving a government of a country a good control over its economy. For instance, the US was once a country that used gold currency but switched to printed money to efficiently deal with economic depression. This is why paper money is associated with a better economic policy.
Paper money is produced, when the government or its financial departments gives the signal to print out more cash. This is done to strike a balance of supply and demand for money in circulation, thus significantly controlling the price of goods on the market. In fact, prices will rise when the supply of cash runs low. The government could be solved by printing more cash. But recklessly producing it can devalue it and hurt a country’s economy.
Economists and other financial experts are not unanimous in their support of fiat currency. Defenders and opposes passionately argue the pros and cons of this currency system.
What is Fiat Currency
published by : anti dolos