Fiat Money

74895_luxurary This topic came out when I was having lunch at Malaysian restaurant in Hoboken. Since I watched one of the series of Lethal Weapon, I were under impression that all money in the world is backed up by gold. I was completely wrong as it’s exactly the opposite. There is no country in this world that runs their money by gold standard anymore.

So what is Fiat Money?

Historically, money was backed by precious metal such as gold and silver. During World War 2, many nations needed more money to support their war. To overcome this, the US government printed more money to pay for military expenditures. All of these money were not backed by gold and thus called fiat money.

Is there any value on Fiat Money?

People might think that fiat money carries no value as it’s not backed by anything. While it’s not backed by gold, fiat money is valuable as it’s accepted as a legal tender by the US government. So all services, products and other assets in the US are backing up this fiat money. The stronger the economy and the financial status of a nation, the higher the value of their currency.

What happened to gold standard?

It’s dead. No government today have 100% money backed by gold. The United States stopped the conversion of dollar to gold in 1971(Nixon Shock). That means you cannot exchange your dollar into gold. If you still want gold, you need to go nearest the Tiffany & Co and buy some nice Return to Tiffanyâ„¢ gold pendants.

Money is always an interesting story. We spend it every day while we get it every month. If you would like to read more about money, here are some places to start:

Gold Standard – The history and the demise of gold standard.

Fiat money – Further readings on fiat money.

How to create money – Interesting title but it’s not what you’d think

  1. #1 by eyeman on May 17, 2009 - 4:53 pm

    this is the first i ever heard about fiat money. Thanks for great info.

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