With people rapidly shifting to digital currencies, the traditional fiat currency has finally reached that point where people have started to wonder, is it going to go extinct soon?
Though, obviously, it will not go extinct anytime soon. Chances are it may still happen sometime in future. If you are confused about what we are talking about here, allow us to elaborate.
What is Fiat Currency?
Fiat currency is a legal tender that is issued by the government. Think of it as the currency notes and coins you have in your purse right now. Fiat means “a formal authorization or decree“ and also, “an arbitrary order.” Both the meanings fit very well in our context.
Fiat currency is both backed by the government since they issue and control it completely. But also, it is quite arbitrary in the sense, its value can go up and down as decided by the government, based on the economic condition of a country. Their value is largely based on demand and supply. Virtually, there is no value to a fiat currency; the value is arbitrarily assigned to it by the government.
The meaning itself stands as a testament to the fact that there is no real tangible value attached to this currency. Gold or silver are much better in that sense because of the tangibility and stability of their value.
However, it is not the only criticism. There are several other backlashes as well.
Arguments against Fiat Currency
- Fiat Money can drop to Zero
As mentioned, the fiat currency lacks any tangible or real value. It is all virtual, assigned to it in an arbitrary way. The paper on which it is presented or printed does not amount to anything and hence, in case of change of government or new economic policies, the fiat currency can lose all its assumed value, dropping to zero.
Currencies like Gold and Silver, however, will never drop to zero, no matter what. They will always retain their values.
- Inflation can lead to a drop in value
Since the value of fiat currency depends on demand and supply. An imbalance caused by inflation can cause a drop in value. In events of hyperinflation, the increased flow of currency results in the fiat money losing its value.
Precious metals like gold and silver often save themselves from such disgraces and retain their profitability because of their supply, which is almost always unlimited.
- You lack control over your own money
Fiat currency is backed by the government; at any given time the power to increase or reduce its value lay with the government and depends on the economy. We already know how much damage inflation can do to the fiat currency and how much loss it can be for those who save it.
Digital currencies and metals offer a larger degree of control, even though we cannot decide their value, we can definitely control and ensure that we decide when it comes and goes. They cannot become redundant overnight.
- It encourages Corruption
This tale is as old as time, the more fiat currency someone has the more power they possess. Corruption is already a big problem all over the globe and fiat currency is one of the main reasons for it. A few sections of society can control it and yield greater power over common masses.
As such, digital currencies and precious metals give everybody equality and degree of control to the people who possess it. The transactions can be done with greater transparency that builds trust and removes the scope for any corruption.
- The government holds the Reins
As already established, fiat currency is controlled by the government and in turn, it gives the government the chance to control everything else. Government has the power to print money whenever they want and in turn take resources from the public, as and when they require.
The government can control the whole economy through central banks and this autonomy is one of the other reasons why fiat currency faces a lot of criticism.
Tradition fiat money is undoubtedly packed with many issues. In comparison, gold and silver are a much better investment because they are free of the various problems that come with the fiat money.