The Danger Posed by Fiat Currencies

Posted by Allison on 23 August 2013, 13:55

Even though the big financial crisis is several years behind us now, the markets are still struggling to get back to anything like a healthy situation. In years gone by we used to have currencies that were tied to the gold standard. This meant they were more stable than they are now, and they only ever fluctuated by small amounts.

However, we are now used to dealing with fiat currencies instead. We all know the term paper money, but what you may not realise is that currencies like the US dollar and the British pound are not backed by anything of value. This is why events like hyperinflation can take place – because the currencies are not pegged against the gold standard.

We’ve seen during the recession that some countries resort to printing more money to flood into the system to keep things going. This wouldn’t happen with the gold standard, but then the chances are the situation wouldn’t arise in the same way anyway. Printing money is seen as a risky proposition and one that can backfire spectacularly. You may remember the UK did it not that long ago – and it is far from being the only country to resort to these measures.

The problem is that none of us can realistically imagine what it would be like for a fiat currency – be it the dollar, the pound or the Euro – to collapse completely. What would happen for the people who relied on that currency to exist? The consequences are unthinkable and it is hard to imagine what the world would become if such a situation did occur. However if you look online it does not take long to find lengthy articles that pick apart this very proposition. The outcome could be devastating the world over and the results would affect us all – even if we didn’t live in one of the countries whose currency had collapsed.

Keep this in mind as you read more about fiat currencies in the coming weeks and months. Would we ever find ourselves reporting on a complete collapse of the system as we know it? Only time will tell.