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Fiat Money

Fiat Money is paper currency or coinage that is not backed by hard currency or anything of actual value. Fiat Money's value is subject to daily volatility in the world marketplace. It's value is based on a country's strength in world commerce, political influence, and most importantly, in the opinion of those who possess it. If the opinion of those who possess a foreign country's currency is negative or rushes to exchange it for another fiat currency, then the value drops until it is at an acceptable value. If there is a demand to possess it, then the value increases compared to other fiat currencies.

There is no telling how an actual value is determined in the world markets or how much a fiat currency will increase or decrease in value daily. Governments attempt to control its value by limiting the amount of currency in circulation and/or produce products or information that is valuable to other countries who are willing to trade for such goods.

All Fiat money in this world is indirectly based on hard currency such as Gold or Silver. No matter how hard a country may try to excuse itself from the direct value of hard currency or bullion, it can not if for no other reason than because of the history of hard assets and the stability it brings to its owner. Face it, paper is paper. Faith in this kind of currency with no type of hard asset backing only brings suffering to those who think their government will back it when the rest of the world will not.

Every nation on this globe is in a world economy that is affected and rocked more noticeably than ever before. The age of information ties us all together more closely so that each of us feels the pulse of the economy down to the slightest ripple.

The Zimbabwean Dollar is the most recent example of fiat currency that become pretty much worthless. Through government corruption and the misuse of their funds. The Zimbabwe government could no longer pay back IMF funds it had borrowed so the government decided to print more Zimbabwean Dollars to help pay off debts. The result was too many dollars with no solid backing to keep it from hyperinflating. Today, it takes millions and billions of Zimbabwean Dollars to purchase anything of value. Presently, many of its citizens are resorting to the "Black Market" to trade for goods and services. The result is chaos in the financial and business sector and increased poverty among its citizens. Many people are also using other currencies to purchase goods and services but this is very difficult to acquire. The Zimbabwean economy is a total wreak!

The country of Argentina also experienced a period of hyperinflation in the early 1980's. This period caused governmental and civil unrest in the country. Several attempts were made to handle hyperinflation - from increasing the numbers on the currency to starting new currencies with the offer of exchanging millions of the old inflated currency to one new currency. Also pegging the peso to the U.S. dollar was also attempted. The late 1980's and the 1990's continued with economic unrest. Today in the twenty-first century, although hyperinflation is somewhat held at bay, Argentina's economy still suffers and is very unstable at best. It remains the most unstable currency in South America.

The Pre-WWII German Marks or Deutsche Marks are another example of Fiat Currency that went awry. During the time between WWI and WWII the German economy went bust. The economy had considerable debt to pay for World War I and the amount of gold to stabilize the currency and pay for debts quickly dwindled and created instability with the German commerce. The wealthy class did not want to pay any taxes or pay any more than the minimum. The poor people preferred that the taxes fall on the wealthy - especially those that started the First World War. Others expressed that everyone should share the burden. The result was the government didn't do anything so the economy began to wane, unemployment rose, the government printed more money to pay debts, and hyperinflation consumed the entire German economic system until it finally collapsed! The collapse wiped out the middle and upper middle class finances in Germany. Other nearby countries whose economy were not tied to the Gold Standard also decayed until sound money - hard currency - was set to maintain a new and stable economy.

The next country experiencing trouble in the economy that could lead to hyperinflation is the United States of America. With recent economic bubbles popping, banks failing, corruption in both U.S. governmental and banking bailouts the United States as well as the entire world is affected by these economic shakeups. The massive amounts of dollars being flooded into the economy most likely will have a inflationary impact on the economy. Too many dollars into the system could result in hyperinflation and the complete collapse of the dollar! More to come in the future.....

Failing German Economy after WWI

Question about the German Economy after World War I

Aftermath of World War I