Fiat currency
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Banking basics
A recap of a few things you’d think financial professionals ought to know
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Fiat currency
(n.)
Money that has value by legal decree — literally, government fiat —and not because it is backed by a precious metal or a physical commodity.
To be contrasted with a cryptocurrency, which is not really currency at all and isn’t backed by anything either.
The expression “fiat currency” is often preceded by the adjective “degenerate”, especially in the mouths of Bitcoiners, who regard it as an enabler of the “capitalist strip mine”:
The argument typically goes:
- Central banks and, actually , commercial banks can “print” or buy back and thereby cancel) fiat currency at will. This changes the “money supply”.
- Changing the amount of currency in circulation naturally depresses (or inflates) the value of a given amount of a currency not backed by anything through simple laws of supply and demand. This can be inflationary.
- Inflation erodes savings and reduces purchasing power.
- This transfers wealth from individuals to the government and financial institutions.
- This process is likened to “strip mining” because it extracts value from the broader economy and puts it in the hands of a gilded few in the same way real strip mining extracts resources from the land enhance it to capitalists.