With the thoughts on Bitcoin and cryptocurrency. One always needs to reason to consider. More less let’s look more into the currency Fiat system. Perhaps this will help you make a decision to look more into cryptocurrency.
Now let’s begin on my lesson about Fiat currency.
Fiat money is a currency without commodity that is created by a government,. Fiat money does not have use value, and has value only because a government maintains its value It was introduced as an alternative to commodity money and representative money. Commodity money is created from a good, often a precious metal such as gold or silver, which has uses other than as a medium of exchange (such a good is called a commodity). Representative money is similar to the fiat system, but it represents a claim on a commodity.
China issued paper money in the 11th century to be used as banknotes. Since then, they have been used by various countries, usually concurrently with commodity currencies. In the 20th century the fiat system dominated most of the world. Richard Nixon went away from the gold backed money in 1971 and since then more and more fiat systems are used around the world.
Fiat money has a few simple ideas. Such as.
Any money declared by a government to be legal tender
Government-issued money which is neither convertible by law to any other thing, nor fixed into a value.
Fiat can be seen as entirely useless since it could be seen made up by a central authority.
The term Fiat in latin means “let it be done. More of a sense of thought.
Treatment in economics
In monetary economics, fiat money is an intrinsically valueless object or record that is widely accepted as a means of payment. micro-founded models of money, fiat money is created internally in a community making feasible trades that would not otherwise be possible, either because producers and consumers may not anonymously write IOUs, or because of physical constraints.
Precious metals
Circulating silver coins in the 1960s ceased to be produced containing the precious metal when the face value of the coin was below the cost of the elemental metal. The Coinage Act of 1965 eliminated silver from the circulating dimes and quarter dollars of the United States, and most other countries did the same with their coins.
The Canadian penny was mostly copper until 1996 and was removed from circulation in the fall of 2012 due to the cost of production relative to face value.
In 2007 the Royal Canadian Mint produced a million dollar gold bullion coin and sold five of them. In 2015, the gold in the coins was worth more than 3.5 times the face value.[14]
History
China
China has a long history with paper money, beginning in the 7th century. In the 11th century, the government established a monopoly on its issuance, and around the turn of the 12th century, convertibility was suspended. The use of such money became widespread during the subsequent Yuan and Ming dynasties.
Europe
Washington Irving records an emergency use of paper money by the Spanish in a siege during the Conquest of Granada (1482–1492). In 1661, Johan Palmstruch issued the first regular paper money in the West, under royal charter from the Kingdom of Sweden, through a new institution, the Bank of Stockholm. While this private paper currency was largely a failure, the Swedish parliament eventually took over the issue of paper money in the country. By 1745, its paper money was inconvertible to specie, but acceptance was mandated by the government.[20] This fiat currency depreciated so rapidly that by 1776 it returned to a silver standard. Fiat money also has other roots in 17th-century Europe, having been introduced by the Bank of Amsterdam in 1683.
New France 1685–1770
In 17th century New France, now part of Canada, the universally accepted medium of exchange was the beaver pelt. As the colony expanded, coins from France came to be widely used, but there was usually a shortage of French coins. In 1685, the colonial authorities in New France found themselves seriously short of money. A military expedition against the Iroquois had gone badly and tax revenues were down, reducing government money reserves. Typically, when short of funds, the government would simply delay paying merchants for purchases, but it was not safe to delay payment to soldiers due to the risk of mutiny.
Jacques de Meulles, the Intendant of Finance, came up with an ingenious ad hoc solution – the temporary issuance of paper money to pay the soldiers, in the form of playing cards. He confiscated all the playing cards in the colony, cut them up into pieces, wrote denominations on the pieces, signed them, and issued them to the soldiers as pay in lieu of gold and silver. Because of the chronic shortages of money of all types in the colonies, these cards were readily accepted by merchants and the public and circulated freely at face value. Now this was supposed to be a temporary measure, However became a norm of acceptance later in the future.
18th and 19th century
An early form of fiat currency in the American Colonies were "bills of credit.Provincial governments produced notes which were fiat currency, with the promise to allow holders to pay taxes in those notes. The notes were issued to pay current obligations and could be called by levying taxes at a later time.[25] Since the notes were denominated in the local unit of account, they were circulated from person to person in non-tax transactions. These types of notes were issued particularly in Pennsylvania, Virginia and Massachusetts. Such money was sold at a discount of silver, which the government would then spend, and would expire at a fixed point in time later.
20th century
After World War I, governments and banks generally still promised to convert notes and coins into their underlying nominal commodity (redemption in specie, typically gold) on demand. However, the costs of the war and the required repairs and economic growth based on government borrowing afterward made governments suspend redemption in specie. Some governments were careful of avoiding sovereign default but not wary of the consequences of paying debts by consigning newly printed cash which had no metal-backed standard to their creditors
From 1944 to 1971, the Bretton Woods agreement fixed the value of 35 United States dollars to one troy ounce of gold.[27] Other currencies were pegged to the U.S. dollar at fixed rates. The U.S. promised to redeem dollars in gold to other central banks. The Bretton Woods system collapsed in what became known as the Nixon shock. This was a series of economic measures taken by United States President Richard Nixon in 1971, including unilaterally canceling the direct convertibility of the United States dollar to gold. Since then, a system of national fiat monies has been used globally, with freely floating exchange rates between the major currencies.
Problems and Inflation
Economists generally believe that high rates of inflation.
However, money supply growth does not always cause nominal price increases. Money supply growth may instead lead to stable prices at a time in which they would otherwise be falling. Some economists maintain that under the conditions. This creates hyperinflation are caused by an excessive growth of the money supply.
A fiat-money currency greatly loses its value should the issuing government or central bank either lose the ability to, or refuse to, further guarantee its value. The usual consequence is hyperinflation. Some examples where this has occurred are the Zimbabwean dollar, China in 1945 and the mark in the Weimar Republic in 1923.
So in general your thoughts on the Fiat System. Does this convince you more to look into the concepts of Bitcoin and Cryptocurrency?
What are your thoughts?
Amazing words.
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