Money, much has been said about it, let’s exemplify it in a simple way. Fiat money comes from the Latin “Fiat” which means “let it be, let it be” with the authority given by some government by decree for commercial exchange and generally issued by the central banks.
Now let’s talk about the interesting thing about Fiat money. Banks CREATE MONEY out of nothing (yes out of nothing, this is just one way). If you borrow $100 from the bank, the bank will lend if you have something worth more than $100, plus charge interest. The more you borrow from the bank, the more money it will create out of nothing, possibly on a computer.
A Fiat currency will be worth more or less depending on the political or economic strength of the government that issues or supports it. But, in ancient times, the value depended on what a commodity, a metal to be more specific, gold, was worth.
Importance of Fiat money in new times
To put it bluntly, a government was only as rich as the amount of gold it owned. This way no country could be rich if it didn’t have gold. Interesting, isn’t it? However, the banks and governments have taken on the task of altering the value of money, linking their currencies to favourable or unfavourable economic conditions. Making their currency fluctuate.
This is how today, economic transformation has distorted the concept of money, creating incredibly rich and incredibly poor countries and people with money that does not exist.
Yes, people. When banks create unsecured money they flood the market with it, causing inflation, dependency or changing the value of prices that people use, exchange or convert. We remember that if a central bank can issue unlimited money with something it doesn’t have, it can also spend it for its own government by converting it into a payment, a product, a factory, or by buying gold.
Any central bank will always find that if it does not have a valid exchange value its currency will have no value in time and will be a long-term debt for that reason the banking system is full of loans and debts and more if your currency is not used internationally.
How does the convertibility of Fiat money affect or benefit us people? By taking advantage of monetary movements with great care or simply by converting Fiat currency into merchandise, into something tangible in value and not on paper.
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