Posted by Allison on 1 April 2009, 16:15
Our currency is a wonderful thing. The notes and coins in our pockets can be exchanged for all manner of things, and the more money we earn the more we can spend – in theory. The truth is that many people spend more than they earn, thanks to the existence of credit cards and loans.
But there is one very important factor about the money system that we use today, and that is the fact that it isn't really backed by anything of note. A dollar is just a dollar, and a pound is just a pound. They have a value against each other depending on what is going on in the world, but that's about it.
The one thing that most people don't realise is that fiat money (as the type of money we use is called) never seems to last forever. This article on fiat money systems – which you can find at http://www.gold-eagle.com/editorials_04/greene032104.html - will reveal how the system works... and eventually fails.
At the moment we are living with a very shaky pound here in the UK. It is losing value against other major currencies such as the US dollar, and there is no real sign of it getting any better. So what will happen if it continues to drop? There is certainly a lot of talk about the fact that it could indeed go a lot lower than it has done so far, and that brings to mind the possibility of just how far it really could go.
If we didn't have a fiat money system in place, the likely alternative would be one that we have had in the past, and that is called commodity money. This is where the money is made from something of value, more commonly gold or silver. Because this is rare, the value will never drop below a certain level. Fiat money can literally be printed again and again, with no limits.
It seems unbelievable that the money we carry around with us and which powers our everyday lives could actually become completely worthless, but it has happened many times in the past and it seems to always happen with a fiat currency. What would we do if the pound finally went the same way?
The strangest thing of all is that the whole system is based on something that human beings have in questionable amounts. That item is faith, pure and simple. In reality it would only take a small group of people to lose faith in the currency and for that small wave to turn into a larger one, for the whole system to completely fall apart.
Now it might seem as if all you would have to do would be to replace that currency with a new one – but if that currency was a fiat currency as well, which there is every chance it would be, we'd be back to square one. It's frightening isn't it? The idea that we could be buying and selling goods and services using something that could become completely obsolete in just a few years time seems bizarre. But who knows, one day we could end up in that very situation, and if we do it will be interesting to see how we get ourselves out of it.