Fiat currency is money that derives its value from government regulation or law. The term fiat currency is used when the fiat money is used as the main currency of the country. The term derives from the Latin fiat (“let it be done”, “it shall be”).
The term fiat currency has been defined variously as:
- any money declared by a government to be legal tender.
- state-issued money which is neither convertible by law to any other thing, nor fixed in value in terms of any objective standard.
- money without intrinsic value.
While gold or silver-backed representative money entails the legal requirement that the bank of issue redeem it in fixed weights of gold or silver, fiat money’s value is unrelated to the value of any physical quantity. Even a coin containing valuable metal may be considered fiat currency if its face value is higher than its market value as metal.
Another interesting point, when we consider how money functions” in our society as a “debt instrument”. The Central Bank creates money out of thin air, then exchanges that “new money” for “interest bearing instruments” such as Government Bonds.
You purchase the bonds with an expectation of making some kind of return on that bond (and where do you imagine that “extra few %’ points” come from over time?)
Your taxes go up – that’s where.
Round and round we go as governments keep spending – and you keep paying for it.
It’s been a slow week here and I apologize for the “lack of interesting copy”, but when I’ve not actively trading there usually isn’t a pile to say. I imagine things will pick up here again soon.