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Fiat Currency

Overview#

Fiat Currency is a currency without intrinsic value that has been established as money, often by Government Entity through by laws or regulation.

Fiat Currency does not have use value, and has value only because a Government Entity maintains its value, or because parties engaging in exchange agree on its value.

Fiat Currency is in use by most Government Entity and may be referred to as money.

Fiat money first began to be used in China in the 11th century. Since then, it has been used by various countries, usually concurrently with commodity currencies. Fiat Currency started to dominate in the 20th century. Since the decoupling of the United States dollar from gold by Richard Nixon in 1971, a system of national fiat currencies has been used globally.

King William, the Protestant Dutch royal who had been imported to the throne of England in 1689 when England and France were involved in a new phase of a centuries old dispute; but at the time was variously called the Nine-Years’ War or King William’s War. This war presented the usual problem: how could the nations afford it? King William's administration came up with a novel answer: borrow a huge sum of money, and use taxes to pay back the interest over time. In 1694, the English government borrowed 1.2 million pounds at a rate of eight per cent, paid for by taxes on ships’ cargoes, beer, and spirits. In return, the lenders were allowed to incorporate themselves as a new company, the Bank of England. The bank had the right to take in deposits of gold from the public and—a second big innovation—to print “Bank notes” as receipts for the deposits. These new deposits were then lent to the King. The banknotes, being guaranteed by the deposits, were as good as gold money, and rapidly became a generally accepted new currency.

This system is still with us, and not just in England.

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