With more and more companies around the world accepting Bitcoin as a form of payment, fiat has once again become part of the mainstream conversation, and is not only synonymous with those cute Italian cars. Fiat actually has a strong relation to money, which is why Im writing about this subject. So, why is fiat currency important? There are global discussions on this topic, which are taking place in boardrooms across the globe. Now, its time to move those discussions to your dining room and get your children and grandchildren involved in the conversation. <\/p>\n
Start with what fiat currency is. It is actually money that a government, or group of people, decides has value. The money itself has no value; it is what it represents. The word fiat is actually Latin for it shall be. After the government (in most cases) establishes that it will accept this representation of value, it becomes what we call a medium of exchange, which means that people can exchange it for goods and services. <\/p>\n
The first use of fiat currency was recorded in China around 1000 A.D. In the United States, fiat currency dates back to the beginnings of North American colonization. During the Civil War, the Federal Government issued United States Notes, a form of paper fiat currency popularly known as greenbacks. Later, in 1944, the Bretton Woods Agreement was created, which fixed the value of 35 U.S. dollars to one troy ounce of gold. In this case, the U.S. government promised to redeem the dollars in gold; however, during what we call the Nixon Shock in 1971, the ability to convert dollars into gold ended. <\/p>\n
Why is this important? Because our offspring are experiencing a world full of fiat currency and they may not even realize it frankly, some of us dont even realize it. The biggest phenomenon around fiat currency today: Bitcoin. What is attracting attention around Bitcoin as a fiat currency is that it is NOT controlled by any singular government entity. <\/p>\n
Many Millennials think the concept of fiat currency of this kind is a new phenomenon. It is not. A case in point: when I was discussing what I considered a recent phenomenon with my close friend, Dr. Samuel Guillory, he pointed out that Baby Boomers grew up with this. He said, Remember S&H Green Stamps? Of course, I did! Every time we went to the supermarket, we were given S&H Green Stamps. My job was to lick those stamps and put them into the books. Im sure my tongue is still green. <\/p>\n
During the 1960s, S&H Green Stamps catalog was the largest publication in the U.S. and the company issued three times as many stamps as the U.S. Postal Service. How many of us where thrilled when we had saved enough to redeem those booklets for an ugly lamp? The lamp is not really the point; as consumers, we felt we were getting something for nothing. This fiat currency offered us that. <\/p>\n
At a recent presentation at MoneyShow University in Orlando, Steve Forbes talked about fiat currency. He noted that we readily accept many things as an exchange of value. He also spoke about how a coat check person hands you a chit in exchange for your coat, which you will redeem later. He asked the audience to think of fiat as a measurement. We agree upon measurements like: pounds, time, miles, frequent flier miles, etc. This is a great conversation starter for you to have with your younger children and grandchildren. Allow them to come up with other examples. <\/p>\n
Nostalgia makes for wonderful dinner conversation, but this article is not meant to create space for you to reminisce about your childhood. The fact is that many fiat currencies throughout history have failed. The Chinese had flying money, which was aptly named because these original paper banknotes would have a tendency to fly out of your hands. Ultimately, it failed because inflation crept in. Louis XV found that his paper currency became oversupplied, i.e., inflation took over and people demanded real coins that were made of gold and silver. We all know the stories of Germany, post-World War I, when the only way to repay war debt was to run the printing presses. The inflation was so huge that it was cheaper to heat your furnace using Germanys currency than to buy firewood with it. To give you a dramatic example of this, the equivalent of one U.S. dollar would be 12 marks in 1919 and by 1923, that same U.S. dollar was equivalent to 4.2 trillion marks. Recently, the Russian ruble has become just another fiat currency to avoid because of deflation. <\/p>\n
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A Few Words About Bitcoin... Because Fiat Is Not Just A Car<\/a><\/p>\n","protected":false},"excerpt":{"rendered":" With more and more companies around the world accepting Bitcoin as a form of payment, fiat has once again become part of the mainstream conversation, and is not only synonymous with those cute Italian cars. Fiat actually has a strong relation to money, which is why Im writing about this subject Continue reading