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 agree on it as a Medium of exchange and to its value.

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

The History of Money shows that Fiat Currency 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.

Fiat Currency and United States federal government#

A strict adherence to the gold standard would limit the potential for damaging inflation this is because the amount of money supply in the system is naturally limited by the amount of gold that is kept in reserves.

Of course the gold standard's biggest advantages can be seen by some as disadvantages strict adherence to the standard can even lead to deflation which is also damaging to the economy.

The convertibility of gold was a pressing issue for Franklin Delano Roosevelt during the great depression as it limited the money supply. Franklin Delano Roosevelt he actually issued an Executive order 6102 which made owning gold illegal and required everyone to convert gold into us dollars.

The reason that he did this was to set a government price for that gold that was quite inflated this would then allow the federal reserve to inflate its balance sheet by over 70 percent.

So yes the Gold Standard was not ideal for these governments but at least it kept them in check it kept a certain degree of confidence in the value of money and when applied correctly could prevent hyperinflation. So confident were countries in the virtues of the gold standard that in 1944, 44 countries signed on to what was called the Bretton Woods Conference. Within the Bretton Woods Conference all national currencies were valued in relation to the United States Dollar this therefore made the United States Dollar the dominant reserve currency. The United States Dollar in turn was convertible to gold at a fixed rate of $35 dollars per ounce. So you can think of it as a quasi gold standard still backed by gold; but indirectly.

The Bretton Woods Conference system had a pretty decent run until 1971 when Richard Nixon committed his first impeachable offense. Nixon's termination of the convertibility of United States Dollar into gold should have sunk him before watergate this is because Richard Nixon set the wheels in motion for the current fiat money system that we know today a glorified confidence game backed by nothing.

So what exactly happened? Well in august of 1971 Nixon said that the United States federal government would "suspend temporarily" the convertibility of the dollar into gold or other reserve assets except in amounts and conditions determined to be in the interests of money stability and in the best interest of the United States. Well it turns out that that temporary suspension became permanent.

More Information#

There might be more information for this subject on one of the following:
  • [#1] - The Invention of MoneyContent unavailable! (broken link)https://ldapwiki.com/wiki/images/out.png - based on information obtained 2019-08-11
  • [#2] - Nixon_shockContent unavailable! (broken link)https://ldapwiki.com/wiki/images/out.png - based on information obtained 2021-08-19
  • [#3] - Executive Order 6102Content unavailable! (broken link)https://ldapwiki.com/wiki/images/out.png - based on information obtained 2021-10-16

This page (revision-6) was last changed on 29-Nov-2024 16:16 by -jimTop