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WHY FIAT CURRENCY PERSISTS

In a recent post I discussed the four currencies Fiat , Fiat Digital Cryptocurrency and Gold. As a follow up I would like to look at why the present system remains despite all its disadvantages.

In order for money to retain intrinsic value it has to be backed by an asset. The asset needs by definition to be rare. Gold by is rare as it was formed in tiny quantities during the last days of a dying star know as a Supernova. Cryptocurrency is rare because the algorithms are designed to limit the amount of money mined giving it scarcity value.

Fiat currency and digital fiat currency can be generated in infinite amounts as the money has no backing. These currencies are generated by central banks with the blessing of politicians. It is therefore not good for long term growth and prosperity to promote either the fiat or the digital fiat currency.

Why then are we as a society collude in holding on to this method of financial transaction? The reason is that both Fiat and Fiat digital currency are infinitely fungible. In other words can be split into smaller and smaller bits for ever. You cannot buy a bar of chocolate with gold as the smallest quantity, say a gramme, is still worth far more than the bars value. Money tied up in land despite being an asset cannot be used to purchase a washing machine. As soon as you offer an I owe you against a piece of that land you are straight back to Fiat currency.

When currency is represented by paper or digital code anything can be bought or sold but when represented by a tangible asset the increasing value of that asset makes it difficult to trade with smaller items. For this reason I fear that we are stuck with fiat digital currency and it will be left to the already wealthy to invest their spare income in long term assets like land and gold. Today I hear that the population of the world has reached 8 billion, approximately seven percent of all the people who have ever lived. With the ravages of climate change and population growth we can no longer sustain this system of alleviating poverty by money alone. We need to convert to a partially non currency method of helping our fellow human beings. Sustainability will require more and more services and products being traded by a barter system where money is left out of the equation altogether.

Money is fundamentally about control and power and is manipulated by a tiny percentage of the population which gets smaller in percentage terms as the population grows. I wold agree that millions have been brought out of penury by technology but millions more are added to a state of financial desperation as the population expands. It is time to rethink our whole way of doing things as ultimately everyone even the super rich will suffer.

Peter Bull ( Author of the book ( Get In Touch With Your Inner Wealth)

Published inBUSINESSFUTURE INNOVATIONMoney

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