Fiat currency

[old man emu]

As mentioned elswhere, Trump's World Liberty Financial issued a stablecoin designated as $USD1. Stablecoins are digital assets pegged to a fiat currency, in this case, the U.S. Dollar. So what are a 'fiat currency' and its operating device, 'fiat money'. Fiat money is a type of government-issued currency, authorized by government regulation to be legal tender. Typically, fiat currency is not backed by a precious metal, such as gold or silver, nor by any other tangible asset or commodity. 

 

In days of yore, kings, emperors and other governing bodies facilitated trade across distance by producing tokens (coins) to which they assigned a nominal value, usually based on a set amount of the valuable physical item. Evenutally the valuable physical item came to be a metal. The metal could be gold, silver, copper or an alloy such as bronze. The common feature of the item was that it could be used to produce other things such as jewellery in the case of gold and silver, or simpler objects in the case of copper and bronze. The value of the item was related to a predetermined value of the metal, and that value was set by the producer of the item. 

 

As the populations of the regions using coins increased, and the amount of trade carried on over large distances increased, the amount of valuable physical material available to produce coins lessened. Also as the value of transaction increased, it became difficult to carry large weights of coins over long distances. So 'paper money' was invented.  Paper money was first used in China in the 7th century A.D.  Like modern banking, individuals would deposit coins with a trustworthy party and receive a note indicating the amount. The note could then be redeemed for currency at a later date. In other words, the note was backed by actual physical items. 

 

Eventually global trade grew to such levels that governments could not continue to meet the promise of exchanging note for valuable physical items made of "precious" metals. This lead to the adoption of fiat currencies and fiat money. In monetary economics, fiat money is an intrinsically valueless object or record that is accepted widely as a means of payment. Accordingly, the value of fiat money is greater than the value of its metal or paper content. Fiat money generally does not have intrinsic value nor a use value. It has value only because the individuals who use it (as a unit of account or, in the case of currency, a medium of exchange) agree on its value. They trust that it will be accepted by merchants and other people as a means of payment for liabilities.

 

From 1944 to 1971, the Bretton Woods agreement fixed the value of 35 United States dollars to one troy ounce of gold. The Bretton Woods system required countries to guarantee convertibility of their currencies into U.S. dollars with the dollar convertible to gold bullion for foreign governments and central banks.  Other currencies were calibrated with the U.S. dollar at fixed rates: for example the pound sterling traded for many years within a narrow band centred on US$2.80. The Bretton Woods system was ended by what became known as the Nixon shock, a series of economic changes by United States President Richard Nixon in 1971. These changes included 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 variable exchange rates between the major currencies.

 

In modern economies, relatively little of the supply of  money is physical currency. For example, in December 2010 in the U.S., of the $8,853.4 billion of money supply in all forms , only $915.7 billion (about 10%) consisted of physical coins and paper money

 

So now, all those trillions of dollars spoken of in relation to international and domestic debt are simply numbers in ledgers. Their actual worth relies solely on the promises of the buyer to pay the seller what is owed. Global debt reached a record high of nearly $346 trillion by the third quarter of 2025, driven by surging government borrowing in both developed and emerging markets. This figure represents over 300% of global GDP. That means that roughly only $115 trillion in debt could be met through productivity. The remaining $230 trillion is Scotch mist.

 

 

[onetrack]

The BBC has a good article on fiat currency.  Marco Polo became excited beyond belief, when he discovered mulberry bark currency notes circulating in China in the late 1200's.

 

He wrote enthusiastically about the entire process of manufacturing the notes from bark, and how the ruler Kublai Khan authorised his deputies to put their seal on the notes, to guarantee their authenticity and value.

 

Of course, as with all fiat currencies, a lack of gold or silver backing, counterfeit money, and excessive production of the notes led to severe devaluation, and the mulberry bark currency became worthless.

 

It was possibly worsened by a decline in Kublai Khans power, caused by excessive warring (especially with Japan), financial mismanagement, corruption amongst Govt officials, and high taxation levels.

 

https://www.bbc.com/news/business-40879028

 

"THE TEXT:

You must know that he has money made for him by the following process, out of the bark of trees – to be precise, from mulberry trees (the same whose leaves furnish food for silk-worms).

The fine bast between the bark and the wood of the tree is stripped off. Then it is crumbled and pounded and flattened out with the aid of glue into sheets like sheets of cotton paper, which are all black.

When made, they are cut up into rectangles of various sizes, longer than they are broad. The smallest is worth half a small tornesel; the next an entire such tornesel; the next half a silver groat; the next an entire silver groat, equal in value to a silver groat of Venice; and there are others equivalent to two, five, and ten groats and one, three, and as many as ten gold bezants.

And all these papers are sealed with the seal of the Great Khan. The procedure of issue is as formal and as authoritative as if they were made of pure gold or silver.

On each piece of money several specially appointed officials write their names, each setting his own stamp. When it is completed in due form, the chief of the officials deputed by the Khan dips in cinnabar the seal or bull assigned to him and stamps it on the tops of the piece of money so that the shape of the seal in vermillion remains impressed upon it. And then the money is authentic. And if anyone were to forge it, he would suffer the extreme penalty.

- Marco Polo, The Travels, 14th Century AD"

 

Edited 12 hours ago by onetrack

[nomadpete]

I never has enough Fiat currency to buy a new house, so I made do with a Renno

[nomadpete]

The global debt looks like a top heavy inverted pyramid.

 

What will make it topple?

 

 

[facthunter]

My Currency currently is so small you can't Fiat.  I've Had a few Fiats, but None currently. Nev

[facthunter]

Time Pete Time. It's NOT IF but WHEN. Nev

[nomadpete]

Time to liquidate my fiat currence.

The BWS has a great exchange rate at the moment.

When the big crash comes, at least I'll have good wine.

[old man emu]

Listen you petrol heads!  In relation to Economics, the term fiat derives from Latin for "let [it] be done", used in the sense of an order, decree or resolution. Looking at the history of this type of currency, the "order, decree or resolution" came from the rulers of the society.