“The term ‘fiat money’ comes up often and is used in financial and economic…commentary. Definitions are offered, but they vary somewhat in accuracy and clarity, and tend to be incomplete, so what exactly is the most accurate and complete definition?”
By Lorimer Wilson, editor of munKNEE.com – Your KEY To Making Money!
[This article of edited excerpts* (663 words) from the original article (1036 words) by Kelsey Williams provides you with a 36% FASTER – and EASIER – read. Please note: This complete paragraph, and a link back to the original article, must be included in any article re-posting to avoid copyright infringement.]
“The specific definition that I find to be the most accurate and complete is as follows: fiat money is inconvertible paper money made legal tender by a government decree. There are no less than four separate terms in that definition, each with its own respective definition, which are critical to a complete, accurate, and clear understanding of fiat money.
Let’s examine each one.
- One definition of inconvertible is “not able to be converted into another form of money on demand”…
- [but an even] better definition of inconvertible would be “not able to be exchanged (converted) into gold (i.e., real money) on demand”.
- Paper Money
- A basic definition of paper money is “money in the form of banknotes”. All paper monies are substitutes for real money/gold. They have no intrinsic value.
- Legal Tender
- The definition of legal tender is “banknotes that must be accepted if offered in payment of a debt”.
- Government Decree
- …The definition of government decree is “a rule of law usually issued by a head of state…”. They are authoritarian in nature.
There is no statement [in the definition] which guarantees that [the fiat money] – the dollar – can be exchanged for gold (real money) on demand…[or] be exchanged for any other form of money.
- In any sense of the word, the U.S. dollar is definitely inconvertible. Don’t confuse currency exchange or purchases of gold on the open market for convertibility. There is no link of any specific quantity at any fixed price for any other form of money…
- The U.S. dollar…is also irredeemable. The definition of irredeemable is “not able to be saved, improved, or corrected; paper currency for which the issuing authority does not undertake to pay coin”. In this case ‘coin’ refers to real money/gold. Both definitions apply….
At the top of the image above, and on the dollars which we use, are the words “Federal Reserve Note”. The Federal Reserve is a bank. It is a banker’s bank. It is also a central bank. Hence, the U.S. dollar is a banknote, and it is printed on paper. As such, it meets the definition of paper money.
In the top left section, directly underneath “THE UNITED STATES OF AMERICA” is the declaration: “THIS NOTE IS LEGAL TENDER FOR ALL DEBTS, PUBLIC AND PRIVATE“ so, we have a “banknote(s) that must be accepted if offered in payment of a debt”, [that is, legal tender]. Both President Roosevelt and President Nixon, in their government decrees (executive orders) suspending convertibility of the U.S. dollar, also proclaimed and declared the use of the U.S. dollar as legal tender, and the declaration is backed by force of law.
It is unnecessary to force people to accept paper money when it is redeemable on demand for a known and specific quantity of gold. Unfortunately, government cannot be trusted which is why, even with convertibility, the U.S. dollar’s link to gold was eventually severed. Here’s why.
- For convertibility to work, the supply of banknotes needs to remain stable. As more paper money is issued, the ability to redeem on demand declines. Some would say that the paper money loses value. Yes, but the only real value to the paper money is its convertibility into gold.
- As questions arose regarding the value of the paper money in circulation, more and more people opted for real money – gold. There simply wasn’t enough gold to meet the redemption demands and to whatever extent it was available, the banks and the government didn’t want to release it.
Gold is real money – and it’s original money. What we call money today is really just paper and the U.S. dollar is the epitome of fiat money.”
(*The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.)
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