What Is Fiat Curency?
To understand what really fiat currency is.... We'll first have to go way back to the first ever monetary system & discuss about the evolution of Money!
So, here we go;
If we go all the way back, to discuss 'bout the evolution of money than we'll get the Barter System as the very first means of Exchange/let people buy anything they desired.
So, Barter System was kind of like— one person who have a bag of rice & wants a pair of shoes than that one person have to find someone who is willing to giveaway a pair of shoes for that rice bag.
By just thinking a bit 'bout the Barter System.... you may have already realised, that this wasn't the best means of exchanging/getting or buying the things one wanted.
You know it wasn't that accurate & infact, it was very difficult to find such people who were giving away stuff in return of stuff one actually wanted & AT THE SAME TIME, the other person willing to take the same stuff provided by the individual in exchange of some thing he/she's giving.
So ofcourse, soon the Barter System was replaced with Gold & Silver Coins.
So people started purchasing stuff with Gold & Silver Coins.
& there wasn't any issue with this one AS there was with the Barter System.
BUT, sonner people were fed up of carrying around the Gold & Silver Coins because they were very heavy & hard to carry around.
So it was replaced too.
& now we've got Paper Money.
Well, there's a quite INTERESTING story behind how Money developed to Paper Money, that we use today!
So let me give you a quick explanation.... But before that.... I want you to know.... that....
Paper Money is the only thing which is sort of a Fiat Currency.... because we know that it has no actual value as such.... Infact, we just BELIEVE it has a value because many others believe it too & so it does have/gets its value.
Moreover, the MONEY HAS A VALUE BECAUSE the GOVERNMENT says it does.... so it does....!
I'll be giving a detailed explanation 'bout this....
So let's talk about how did we came from using Gold & Silver Coins to Paper Money which can be printed as much as one (in power) wants to, regardless of from what it derives its value from &/OR what does it holds!
It'll make more sense now, within a while!
Okay! So at one point in time, people were fed up of carrying around heavy Gold & Silver Coins with them.
So there were these people who created such kind of a thing/deal/system/ or they just came up with such an idea.... in which one can give/submit the Coins & take a receipt which have the value of the Coins (Gold & Silver) which the people have submitted. So it'll basically have the amount written on it!
& that Receipt was the Paper Money!
& sooner, there were so many people who came to the place & exchanged Gold & Silver Coins to get the Receipts.
& it turned out that everyone started trading/buying stuff using those receipts.
& literally no one was coming to take back their Gold & Silver coins.
THOSE RECEIPTS WERE BEING USED LITERALLY EVERYWHERE BY EVERYONE.
So, you see, the little thing started by just some people— one or two people.... was now used among everyone. THIS WAS SO CALLED THE WORLD'S FIRST BANK!
& due to this kind of— people's behaviour.... those individual's (who started the system....) got a bit greedy.... & they started printing more money/receipts which in this case has no value...., means this time their wasn't any Gold &/OR Silver under these Money//Receipts they made.
& the money that have no value is what we know as Fiat currency exists.
Well you know, like — A Derivative derives its value from an underlying asset. & in this case the Derivative is the receipt deriving its value from the Gold & Silver Coins.
But NOW, due to greediness, those individual's were now giving away receipts that has NO underlying value.
In fact, they were giving away those receipts/money as Loans to Earn More in forms of interest. Regardless of it having an actual value.
Now, I won't go any further into the concept of "Derivatives", anymore because there isn't anything this topic needs to do with Derivatives, anyways. So it is a very OUT OF TOPIC THING.... & infact there might be many people who are kind of clueless of what it is & it might seem complex.... however, I have articles which explain 'bout Derivatives pretty well.
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You may check'em out.... IF YOU WANT TO! ....:
What Are Derivatives? Types Of Derivatives!! All About Derivatives Explained!
Anyways, so, yeah this is pretty much what really happened!
& you see, this is kind of similar to how banks works today.... Like---- giving away loans & all, but Banks do pay us Interest!
So, anyways, coming to today, we have Paper Money....!
Paper Money can be printed as much by someone (in power)!
& with that it looses it's value.... As it is kind of related to demand & supply.... If we print a lot of money (supply is alot); demand will go down & than there's Inflation!
& do you know that Fiat Currency is also one thing that causes Inflation! .... & that's pretty obvious 'cuz money looses it's value!
Read: What Is Inflation? What Causes It?
Talking 'bout now we even have Crypto Currency!
But you know Crypto Currency's prices is solely based on the Demand & Supply rule!
---- They too don't have any underlying value!
Anyways, so I hope you've got the answer you were looking for!
Fiat Currency is just a Currency that have no real value! ---- It may be considered valuable right now but not for long as it looses its value with time!
I hope everything makes some sense to you, now!!
Anyways, so that's it for today!
Thanks For Reading!
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