Fiat currency / by kevin murray

In 1971, the United States through President Nixon, officially decoupled its Federal Reserve Note (aka USA dollar) from gold, and therefore made its currency, a fiat currency.  In short, a fiat currency is any currency which is back by nothing, other than the confidence and faith that entities that utilize such believe that it has worth.  Further to the point, all fiat currencies will over time, trend towards becoming of less and less value in what they are able to purchase, for it is well known, that "bad money drives out good," which is why you do not see anybody utilizing coins that contain silver such as United States quarter coinage made previous to 1965, which were 90 percent silver, being used for their stated value of twenty-five cents, but are instead are no longer circulated because their meltdown value is over $3.00.


To drive home further the point of the weakness of fiat currency, recognized that as reported by, the median price of a new home sold in the United States in August of 1971, was $25,300; and additionally as reported by, the nominal median household income for 1971 was just $7,626.  If those numbers seems astonishingly low, recognize that inflation is an insidious thing that erodes the value of fiat currency over a period of time. So that, such proves the point, that fiat currencies do not maintain their value, because fundamentally fiat currencies are merely transaction devices to more easily pay, procure and to execute business and personal affairs.


There are many that decry the absurdity of backing currency with gold or silver, though, in truth, this has been done for millenniums. Still, it is important to note that fiat currencies that are backed by nothing, other than specious words such as the full faith and confidence of the government are always intrinsically unsound.  In a modern world, though, there isn't any reason why currencies can't be back by other things of value such as land, oil, coal, natural gas, and so on and so forth.  The main problem with these other sorts of commodities is that they lack the ease of being physically transferrable and hence would necessitate almost always, some sort of physical or electronic scrip being passed back and forth, while also being susceptible to manipulations of all sorts.  Still, to have a currency backed by a basket of commodities would invariably help to stabilize that currency.


The fact that the United States dollar has become worth less and less over time, creates a scenario in which savers and investors have to find avenues of investment and saving vehicles that help to alleviate or that will exceed the value of what their currency has depreciated to.  This so indicates, that for the most part, even widows and orphans, must take on some sort of risk, for to merely sit on their dollars, is a losing game, of which all of this risk, is yet another factor in the instability of the dollar, and further increases the volatility of the value of the dollar as well as threatening its continued existence as a quasi-reliable fiat currency.


In short, all fiat currency is a confidence game, of which, all confidence games come to an end, when the deception is fully and completely exposed.