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The definition at [1] sounds a little different...
The last paragraph says something like 'Between the end of World War II, ...' - that doesn't make sense, there should be two times for a 'between' statement. I had a quick look at the US dollar article to see if I could fill in the gap, but it's not clear to me what the period in question actually is. Can someone else fix it please? - S
The article leaves an impression that the gold standard was a kind of widespread historical standard without qualification other than that the silver standard was an alternative. In fact, the gold standard only became widespread quite recently, due to widespread western wealth. When societies were poor, the standard was whatever people could afford. Thus the usage of lesser metals like silver (the British pound was original a pound weight of sterling silver, thus Pound Sterling) or copper (Roman sestercii), or even non-metals.
Will someone correct it, or should I?
Is Ultra-conservative the right word to use in describing those who support the gold standard? I know that is an accurate description, but since conservative has formed a destint political meaning and most of those who oppose fiat currency are Libertarians should we develop a better term? -- Miked84 22:20, 14 December 2005 (UTC)
Ultra-conseratives is inappropriate. Changed to libertarians. Adding ultra to conservative is meaningless, and attributing the advocacy of hard money to conservatives is misleading and inaccurate. 72.147.32.103 02:32, 24 December 2005 (UTC)
Fiat Money = What your government forces you to pay as payment in taxes. You can't pay taxes to the government with Non Fiat Money. Both the Gold and Silver advocates and the Fiat Money advocates are incorrect and wrong.
The truth and fact is there is a cause and effect as to what a nation uses as money at the beginning of the money laws.
Sounds like a point of view and bad formatting to boot. Tinus 22:11, 24 December 2005 (UTC)
This article says fiat money is money with no intrinsic value, rather than money that is declared by the government to have value.
If true, that would be a change to the very top section of this article, at least.
dfrankow ( talk) 20:23, 26 November 2009 (UTC)
Federal Reserve Notes (FRN's) represent US Obligations, not US wealth. Currency does not necessarily have to be based on a "Gold" or "Silver" standard. The evolution of paper and coin currency in America was born of convenience, as individuals would deposit wealth (gold, silver, etc) at a bank for safe keeping. Banks would offer "Warehouse Receipts" in the sum of the deposit. Individuals would trade the receipts rather than withdrawing their wealth, paying their dues, only to have the recipient of said wealth redeposit the wealth back into the bank. By definition currency is a substitute for wealth, and required to be backed by a commodity that is universal and liquid. Federal Reserve Notes are neither, rather they are IOU's to be redeemed against future production. Additionally the Federal Reserve System also keeps reserves of foreign currencies, bonds, and other such assests, none of which are commodities, and are difficult to liquidate. Most Foreign currencies, bonds, like Federal Reserve Notes are not backed by a commodity thus their value is questioned.
Franklin Roosevelt, along with the Federal Reserve Bank, stole wealth from US citizens by way of Presidential Executive Order 6102 which outlawed the ownership of gold by private citizens. Essentially this can be looked at as a form of slavery as FRN's are symbolic of debt, not wealth. The collateral on said debt is the future productivity of the nation, i.e. its citizens. Citizens thus are required to pay the interest of said debt in the form of taxes through labor. After World War I England and most of Europe moved away from the Gold Standard and instead kept reserves of foreign currencies, especially FRN's. This in part is symbolic of our National Debt.
Foreign currency and bonds (especially triple A rates govt bonds, like those of France, Germany and the UK) are amongst the most liquid financial assets in the world. Furthermore, somebody's debt is someone else's credit, so your assertion that they do not represent wealth doesn't really make any sense. Your argument is self defeating, if debt isn't wealth, then a gold backed currency can't work because even when they were payable in gold, US gold certificates were simply debt (The US govt owes the bearer such and such an amount, ie it is in debt and promises to pay that debt in gold coin), and hence not wealth. You also state most foreign currencies are not backed by a commodity and hence their value is questioned, but you don't mention by whom.
In general, the Wikipedia articles (gold standard, fiat currency, related ones) need to attribute beliefs to the relevant economic schools of thought. Many of the statements in the current articles appear to be statements of faith, not fact, and they don't, in general, acknowledge which school of thought they are from. This BIG problem kind of overwhelms a lot of the little problems.
This article is one of the most biased, propaganda-filled articles on Wikipedia, and should probably be completely re-written. It is full of arguments and rhetorical questions, rather than a simple statement of facts and information. One would hope that the article presents different viewpoints equally, instead of one viewpoint, the opposing viewpoint, and then why the opposing viewpoint is wrong. Information on this articleis controlled by people who feel strongly about one position on the subject, and they are the only ones who bother to write and edit the article. In short: this article is what's wrong with Wikipedia.
I have several problems with this article but let's just start with the first sentence:
OK. I'll stop there, for now. Paul Beardsell 04:15, 6 January 2006 (UTC)
What if, on the currency, it's stated THIS NOTE IS LEGAL TENDER AT MCHAPPY'S BURGER STAND, here is example of legal tender where no gov't is required, before it is considered legal to tender. Marvelous marvin ( talk) 16:21, 1 March 2008 (UTC)
@Marvin - If the government isn't involved than it isn't LEGAL tender. This would more or less be called... a coupon. The word legal is usually indicative of government or "law" involvement. —Preceding unsigned comment added by 206.253.186.23 ( talk) 12:57, 12 March 2008 (UTC)
I find this statement deceiving:
"One recent example was the Argentine bust which followed the unravelling of its “currency board”. Instead of being linked to gold, the peso was linked to the U.S. dollar, which served as the hard money basis. When an economic crisis hit, dollar reserves fled the country, causing the monetary basis to collapse."
How can "dollar reserves flee the country", I think what must have happened is that they were spent. This hardly seems like a problem with the monetary system, but rather simply a reflection of a collapsed economy. If you spend all the money, you've spent all the money! In effect, wouldn't this be a testament to the success of the system, the government was not able to pretend that they hadn't spent all by simply printing more money, ensuring that the money did not inflate?
___________________________________________
Answer to "How can dollar reserves flee the country?"
If a central bank (in this case, Argentina) stands to exchange 1 - 1 with the US dollar, they issue pesos and hold dollars in reserve (to "Back" their currency).
If someone with a lot of pesos doesn't believe that the central bank has enough dollars to back their currency, or believe that the peso is overvalued (which is the same thing) they can engaged in a speculative attack. Basically, they sell pesos to the central bank and receive dollars. This drains the reserves in the central bank and often causes a devaluation in the currency. —Preceding unsigned comment added by 74.232.140.88 ( talk) 03:21, 14 February 2008 (UTC)
"A further illustration of the irrelevance of physical convertibility can be seen by supposing that a bank issues two kinds of paper dollars: one redeemable for one ounce of silver throughout the year and another redeemable for the same amount of silver, but only at the end of a year. If the market interest rate is 5%, and if it is costless to issue paper dollars, then the inconvertible dollar must start the year worth about .95 ounces, rise to about .97 ounces at mid-year, and finish the year worth exactly 1 ounce. Any other values would result in arbitrage opportunities. For example, if the inconvertible dollar started the year worth .96 ounces, then each time the bank received .96 ounces of silver in exchange for a newly-issued dollar, it could lend the .96 ounces at 5% interest, be repaid 1.01 ounces at year-end, pay off the paper dollar with 1 ounce, and earn a free lunch of .01 ounces.
What is the value of the convertible dollar? A little reflection will convince the reader that it too must start the year at .95 ounces, reach .97 ounces at mid-year, and finish the year at exactly 1 ounce. That is, the issuing bank must actually raise the amount of silver it will pay for a dollar over the course of the year, or arbitrage opportunities will result. For example, suppose that at the start of the year, customers can deposit .95 ounces and get one paper dollar in exchange — a physically convertible dollar that can be returned to the bank for .95 ounces if the customer desires. If that dollar remained at .95 ounces over the whole year, then at the end of the year the bank will have received a free lunch of .05 ounces — a free lunch that will attract rival bankers willing to pay 5% interest to the holders of their dollars."
How can any logic be derived from this example without specifying how the notes are issued to start with? They don't just get issued, they get sold, but at what price? How much silver is paid for these two notes to start with? Obviously at the begining of the year, one would pay the bank a full ounce for the note that is convertible (back to 1 ounce), but only .95 ounces for the one that wasn't! This example is therefore bogus.
I agree, I am going to remove those two paragraphs as it is more confusing (and erroneous I believe) than it is informative over what I see is something quite simple. A physically convertible currency is affected by the interest rate of the specie or commodity that is backing it. And by the way, no one knows what the actual interest rate for anything will be for the year. That would be the same thing as predicting the future. Also, a 5% interest rate would not increase 0.95 to 1; it would increase to 0.9975. 5% interest would raise 1 to 1.05.-- Acefox 00:10, 25 November 2006 (UTC)
I've wondered for a long time why people are willing to accept a currency that is not physically convertible. And "financially convertible" sounds to me too much like "bootstrapping", which is worrysome to me as a mathematician.
So I recently discovered some important fact of the media / ad industry, namely that adverts often promote something other than the owner of the relevant trademark. For example, shop owners will seldom put up a sign saying "Ice cold softdrinks available here". Instead they'd rather put up a "Coca-cola" sign, giving "Coca-cola" free media exposure.
Now many ads include prices e.g. "Coca-cola now only $1". Therefore currencies gets free media exposure almost everywhere you look. My guess is that this media exposure is of the order of a hundred of billion of dollars every year (based on global adspend). This means that the dollar is the largest brand to ever exist. It also means the brand equity of the dollar rivals the value of the gold backing the dollar.
I'm sure someone figured all this out before me, but why does the article not mention any of this ? -- Nic Roets 13:49, 6 August 2006 (UTC)
I put the warning due to this:
It doesn't make any sense and seems to assert as fact that whether or not there is a gold standard "doesn't really matter". In the example, what is going on? The customers deposited silver for a warehouse receipt entitling them to silver. Now, how does issuing bonds head off the run? The bank still has to pay those bonds with interest, despite doing nothing to increase its reserves. The passage would imply that I can start a storage facility for some asset, then pocket the asset for myself, and nobody would mind. If someone doesn't clarify what this passage is saying, I'm going to have to delete it. MrVoluntarist 16:26, 15 October 2006 (UTC)
I agree that it not neutral. Any suggestions on how to improve it? -- Benn Newman 16:27, 21 October 2006 (UTC)
I wrote the section on physical vs. financial convertibility (sproulmike@yahoo.com). Everyone agrees about physical convertibility--one dollar can be redeemed for one ounce. Financial convertibility seems to be misunderstood. It only means that a bank stands ready to use its bonds to buy back the dollars it has issued. For example, if the Fed believes there is too much cash in the hands of the public (usually evidenced by a low federal funds rate), it will sell bonds, thus soaking up the excess dollars. The importance of financial convertibility is to correct the common misconception that if a currency is not physically convertible, it is unbacked. A currency can in fact be physically inconvertible but still backed by the bank's assets, and the more diligent the bank is in maintaining financial convertibility, the less physical convertibility matters.
This is, as you said, similar to the real bills doctrine. There is a further discussion in a UCLA working paper entitled "There's No Such Thing as Fiat Money". I forget the number, but that's why we have google.
Okay, I'm going to take a stab at rewriting this section to say what I *think* was meant and without being POV or adding unnecessary suppositions. Here goes...
Thoughts? MrVoluntarist 02:11, 8 December 2006 (UTC)
While banks can mantain the value of the currency with "open market operations" almost making physical convertability redundent. Requiring them to allow physcial convertability forces them not to endlessly inflate the money supply.
Geoffsmith82
01:41, 15 December 2006 (UTC)
Financial convertibility means that a dollar is redeemable for a dollar's worth of stuff at the issuing bank--not that it is just acceptable in the market. If the bank didn't maintain financial convertibility then the money would lose value in the market. I don't think ths rewrite is an improvement. (Preceding unsigned comment by 67.49.42.239 aka Mike Sproul)
If a dollar is issued by a bank in exchange for a bond worth a dollar, then if that dollar is no longer wanted by the public, that dollar can be returned to the bank in exchange for a bond worth one dollar. That dollar is financially convertible. If the dollar cannot be returned to the bank for a bond worth one dollar, then the dollar is financially inconvertible. Obviously a dollar will buy a dollar's worth of stuff on the market, but that is not what financial convertibility means. For example, if the bank wants to maintain the value of a dollar at one ounce of silver, then if it sees the value of the dollar starting to fall, it can sell a dollar's worth of bonds for paper dollars, thus soaking up the unwanted dollar and keeping the dollar equal to one ounce. Thus, by conducting ordinary open market operations, the issuing bank can make physical convertibility unnecessary. (Preceding unsigned comment by 67.49.42.239 aka Mike Sproul)
It is tautological to say "a dollar is worth a dollar", but not to say "a dollar is worth an ounce of silver". Saying that the bank uses financial convertibility to maintain the dollar at one ounce is equivalent to saying that the bank uses open market operations to maintain the dollar at one ounce. In conducting those open market operations, the bank is continually exchanging paper dollars for a dollar's worth of bonds, but that does not mean the value of the dollar is indeterminate; it remains at one ounce. If, as you say, the bank threw away its assets, then of course the dollar would lose its value. A dollar would be worth zero ounces, though a dollar would also still be worth a dollar. (This seems to be what GeoffSmith was getting at above.) BTW: Are you adding my name to these posts on purpose? It's no big deal, but if I were worried about my privacy it might be. I assume you go by "MrVoluntarist" because you also don't want your name displayed.
Real banks back their dollars with "a dollars' worth" of assets, so in the interest of realism I listed the assets partly as silver and partly as dollar-denominated bonds. The trick about dollar-denominated assets is that they present the possibility of inflationary feedback: Let's say the bank is robbed of some of its silver, and the dollars fall in value as a result. But now the dollar-denominated bonds fall too, which leads to a further fall in the value of the dollar, etc. This can be described algebraically as follows: Let E=the exchange value of the dollar (oz./$), and suppose the bank has issued 300 paper dollars, worth E oz. each, and backs those dollars with 100 oz of silver, plus bonds worth $200. Since assets must equal liabilities, we get 100+200E=300E, which yields E=1 oz./$. But if, as above, the bank is robbed of 50 oz., this becomes 50+200E=300E, or E=.5 oz./$. Note that if the bank had held 300 oz as its assets, the same loss would have yielded E=250/300.
As for bonds being denominated in future dollars, it is a simple matter to suppose that the bank holds bonds that promise $220 in 1 year. At 10% interest the bonds are worth $200 today. I know some people worry about what happens if there aren't enough dollars to pay the interest in dollars, but any rational lender would accept his interest payment in silver or something else.(Preceding unsigned comment by 67.49.42.239 aka Mike Sproul)
Looking back at the article, it does not directly mention the "dollars' worth" problem. I'm open to suggestions, but my first reaction is that this would just take the discussion too far afield. Since, as you say, this is a notoriously confusing issue, maybe some discussion is warranted, but that's why wikipedia has this discussion page. As for the quotal share point: First, the phrase is so rarely used as to be nearly Greek to the average reader. Second, it glosses over the inflationary feedback problem. I'm fine with saying that financial convertibility doesn't require the bank to redeem (for silver) on demand. It is, however, wrong to say that financial convertibility means that a dollar can be redeemed somewhere other than the issuing bank. The defining characteristic of a financially convertible currency is that it can be redeemed for a dollar's worth of assets AT the issuing bank. Put another way: it is the issuing bank that conducts open-market operations, not the general public.
As long as quotal share means what the formula says, I don't have a problem with it. Normally financial convertibility is exercised at the bank's option. The bank sees the value of the dollar dropping and so it sells bonds. But two things occur to me: 1) In principle, physical convertibility could also be at the bank's option, and (2) If people borrowed money from the bank, and they chose when to pay it back, then financial convertibility is at the customer's option. You're correct that if a bank refuses financial convertibility, then the value of the dollar would drop--to the discounted present value of the expected eventual payoff--which might be zero.
wikipedia is full of comunists
Quotal share means nothing, and is easily the most confusing pair of words on this page. 'Quotal' does not appear in dictionaries, and is apparently some kind of neologistic wiki-jargon. The phrase 'open market operations', on the other hand, has a well known meaning, with respect to central (currency-issuing) banks. Open market bond sales are the mechanism by which the Fed maintains its target interest rates, by draining the financial system of excess reserves which would otherwise be lent out at lower rates. Go read a book, and stop drinking the free market koolaid. —The preceding unsigned comment was added by 24.22.108.122 ( talk) 08:39:38, August 19, 2007 (UTC)
I think this article is misusing a term "dollar" in a large scale. For example: "A unit of paper or credit money (a “dollar”)" in convertibility section. 'Dollar' is NOT a unit of money, dollar is a NAME of US (and few other countries') currency unit. Article like this should use more general terms. Daddy32 —Preceding comment was added at 12:51, 21 January 2008 (UTC)
I agree with Daddy32 that when the price of something is stated, use the ratio of goods it's denominating. Also, in terms of issuing bonds to 'back' the currency - the only reason a bank would do this is because its reserve ratio is less than 100% and it uses its goodwill with customers to make up the difference. If the example is under 100% reserve, the person returning the fiat notes would just be selling his silver in return for a bond. If the bank issued notes at 1 note=1 oz silver, and issued 100, the person who didn't want 1 note would give it back, and that 1 oz silver would go back to him. Then, he could buy a bond at whatever rate for 1 oz of silver, and the bank would have to find a way to make a return higher than the yield. Under a 100% reserve system these two operations would be completely separate, which the reserve ratio could be determined by an audit. If the bank does not have physical possession of what is backing the notes, then the bank has counterfitted. The bond operation would have to back its products with something other than the reserve of the bank, because all that money is spoken for. 143.115.159.54 ( talk) 17:20, 3 March 2008 (UTC)D-Unit
The article as a whole, and this section in particular, is massively short of citation and attribution. This section reads like a debate between opposing contributors and is a synthesis of their views. (The SYN tag usually applies to an editor drawing his own inferences from cited material. Since no citations have been provided, one could argue that it is not the best tag, but it is better than NPOV). Frankly I'm astonished that this article was awarded GA. -- John Maynard Friedman 16:55, 15 August 2007 (UTC)
However, the next section which follows is a bunch of Marxist and anti-Marxist rants about whether or not this extra layer of government guarantee is a good thing or not (Marxists, who love government, apparently think it is). But whether these things are "good" or not, or even most of the debate about whether they are "good" is outside the scope of this article. Summarize shortly and put it in the article on Marxist economic theory, or something. We don't need the whole debate. The types of money are what they are, and nothing but a pointer needs to go to other article(s) debating on the utility or "trueness" or helpfulness or goodness of each of them.
[And by the way, if credit money is a giant hoax perpetrated by capitalists, then show me the Marxist or Communist State which isn't glad to get credit from the rest of the world. If they can't get it, and their fiat money is worthless (see Cuba) it's only because they have tended to be theives about investment from other countries, and now nobody trusts them. That's what happens with credit: if you're not credible, nobody trusts you.] S B H arris 22:36, 29 October 2007 (UTC)
Why is there a few lines devoted to the Liberty Dollar, with obvious bias no less. Why has it stood for so long? If a contributor really cares about the Liberty Dollar they should make a new article and include a link to that article. I am removing those lines for the moment. —Preceding unsigned comment added by 209.240.89.251 ( talk) 02:38, 3 November 2007 (UTC)
1) Try sticking to common language usage when explaining something. "Quotal", if it is a word, is very rare. If you must use it, define it or link it.
2) Talking about '1 dollar = 1 oz silver' can be confusing in a theoretical example, because silver really has been used as a commodity. Try dumbing down the GDP/productivity guarantee to something like '50 cows and 500 sheep', so each of the 100 dollars is 'worth' 0.5 cow + 5 sheep (BTW, this neatly leads to a discussion of specie exchange rates, where 1 cow = 10 sheep) -- 72.1.212.20 21:41, 21 September 2007 (UTC)
Wouldn't this read better if written in the form of "An argument is/can be" instead of "They argue"? The way it is written now it reads as though the arguments are false. 85.165.222.180 ( talk) 19:50, 19 November 2007 (UTC)
This topic is in need of attention from an expert on the subject. The section or sections that need attention may be noted in a message below. |
This is an important article and, as remarked above, does not do justice to the subject. The entire article needs a thorough review by an expert. -- John Maynard Friedman ( talk) 14:04, 7 January 2008 (UTC)
I object to the call for an "expert" as contrary to the spirit and genius of Wikipedia. Wikipedia is precisely that information source that frees users from the developed interests (biases) of experts. It also flies in the face of the "anonymity" of contributors (not in the sense that contributors can't be identified at least to their other contributions, but that totally adequate contributors can be persons who completely lack the sort of credentials apparently being called for in the notice I find attached to the top of this article. This article IS important, but it bears on anyone and everyone who uses money. God help us if the subject can't be explained by non-experts. -- Joe ( talk) 03:50, 16 December 2008 (UTC)
I chopped the following text out of the article, it seems to be more appropriate in a general history of currency, rather than this article which focuses on fiat currency:
Historically, the names of the individual coins and the names of the unit of account were identical, e.g. a
shilling was both a type of coin and a unit of account. The law would therefore recognize tender of those coins as legal satisfaction for debts denominated in that unit of account. Different-mass coins of the same metal could explicitly be recognized as being legally valued at fixed multiples of each other in their names (e.g. in the case of the
crown and
half-crown) or simply by reference to their legal masses (e.g. the legal mass of a
florin is twice that of a
shilling). A government could legislate for the minting of a system of metallic currency, including the fineness of the metal and the legal and original masses of the coins, without legislating for legal tender or legal values of the coins themselves — they can be discovered or implied by the ratios of legal masses of fine metal in each species of coin.
Coins of different metals naturally resist incorporation into a common unit of account, and therefore of a common legal tender value system. Governments have historically attempted to fix the legal values of different metallic coins to create a unified unit of account and standard of legal tender for payments large and small. Two mechanisms have been used in this connection: multi-metalism and token coinage. The former took the form of bimetallism, where both gold and silver coins were given legal values in terms of each other. e.g. gold coin was legally valued by nominal mass at 15 times silver coin. As market forces changed the actual value of gold in relation to silver, one coin would become overvalued in reference to the other. For example, suppose there were two coins, a shilling being 6 grams of fine silver, and a sovereign being 8 grams of fine gold. If the unit of account were the shilling, then the legal value of a sovereign would be 20 shillings, and a debtor could discharge a debt of 100 shillings with five sovereign coins or 100 shilling coins, at his option. Debtors will nearly always choose the cheapest way to discharge their debts, and this results in the constant threat of demonetization of a legally over-valued metal. Token coinage adopts the coins of the higher value metal as the monetary standard, and limits the lower value metal coins to fractional currency. This is done by deliberately over-valuing the legal tender value of the lower value metal coins and limiting the total amount for which they can be legal tender in any one payment. For example in 1816 the English silver currency was lightened by 6% and the limit of the legal tender of 40 shillings per payment was imposed. Such token currency is clearly fiat currency, as it is only by government fiat that the coin can be received at its legal value.
Over time multi-metallism was replaced by gold mono-metalism, via composite standards where gold coin was unlimited legal tender and silver and copper coins were lightened, limited and converted into tokens.
Bank notes as legal tender by government fiat originate from the advent of central banking. Central banks are banks of issue that are owned, sponsored or favoured by the government. Bank notes are negotiable instruments, being promissory notes issued by a bank and payable to bearer on demand. Central banks are generally favoured with monopoly rights to issue bank notes, and/or for these notes to have the status of legal tender. Alternatively, currency notes can be issued directly by the government or its non-bank agencies, and/or the government can favour selected commercial banks by making their notes legal tender (as in Hong Kong). It is important to note that paper money and fiat currency are not the same. For example, Scottish commercial banknotes act as money, but are not legal tender and therefore not fiat currency.
Aatombomb (
talk)
19:27, 7 January 2008 (UTC)
The whole lead seems overloaded and much of this is addressed elsewhere in the article.
Without government demand for certain kinds of paper as legal tender, such as bank notes, only specie is unlimited legal tender. However this is not universally true, as some currencies, (notably sterling issued by Scottish banks [1]), are not legal tender but are accepted by longstanding confidence (Scotland technically has no note of legal tender and thus no fiat money-- see Pound Scots).
A bank of issue whose notes enjoy legal tender status by government fiat can use its own notes, making their redemption in specie optional — a matter of the 'monetary policy' of the bank in question. Historically, the institution of fiat currency has preceded and enabled the demonetisation of specie, via a monetary policy decision not to offer payment in specie at par, e.g. by suspension, devaluation or redemption in bullion or foreign currency instead. Eventually this leads to no form of payment, redemption or exchange whatsoever being offered by the issuer and a system of freely floating national currencies, none of which is "redeemable" by fixed amounts of specie or any given commodity.
Aatombomb ( talk) 20:11, 7 January 2008 (UTC)
I'd like to add Josua A. Norton in here somewhere. He is a notable case of an individual who issued fiat money that was apparently actually accepted as currency by some residents of San Francisco.
Aatombomb ( talk) 17:10, 11 January 2008 (UTC)
Some of the careful distinctions between these kinds of money (and examples of them) have been removed from this article. Er, not to be impolite, but in some cases, by YOU. S B H arris 17:41, 11 January 2008 (UTC)
Wikipedia is designed to reject and expel experts in favor of the nonsense promulgated by the administrators and bureaucrats. I'm not helping the inmates run the asylum they've built for themselves out of compressed particle board and barbed wire. —Preceding unsigned comment added by 67.101.123.88 ( talk) 17:03, 23 January 2008 (UTC)
The article now says that fiat money can be issued on authority of a bank, without the government having an opinion. I don't think that's right. The last is "credit money", an important concept in itself. Fiat money is a SUBSET of credit money, in which the government has become creditor(lender)-of-last-resort. In otherwords, it's the government's credit, not the bank's alone. These things should be carefully spelled out here. Fiat currency appeared in the US only during the American Civil War, in the form of greenbacks, backed by US bonds. Before that, in the period between failures of the US bank (back to Jackson) all paper currency was banknotes from state or private banks and was credit money only. S B H arris 21:13, 29 February 2008 (UTC)
The lead section says:
There has never been a form of money that has retained its value as fiat money once the backing government's tax enforcement powers have waned
Easily disproven by the counter-example of the Swiss dinar:
During this period the Swiss dinar was endorsed by no central authority or government (in fact it was a disendorsed currency) and was not redeemable by any issuing agent, or backed by any commodity. Its persistent and sustained market value derived purely from its utility as a culturally accepted medium of exchange. As such it is often cited in economic discussions about money and the origin of money's value.
Do you agree with me that this is wrong, and that we need to change the lead section? — Ksero ( talk | contribs) 19:58, 17 March 2008 (UTC)
I think that this has become a rather controversial topic(at least in the United States, with the elections and whatnot; esp. Ron Paul & Stances) and i just wanted to hark on the fact that the primary portion, the "bulk", of this article seems to have remained unchanged since before most, if not all of the article flags (NPOV, Expert needed, etc.) were posted. I think this is controversial(as i said) (&part of the reason this probably became flagged) and that although most of the data is unverified and isn't exactly NPOV, it IS good data and shouldn't be tossed aside carelessly. Heavily re-worded, and cited, but not thrown out. 137.49.222.44 ( talk) 20:05, 7 May 2008 (UTC)
Just as a heads up to those who edit this article regularly. I have created a separate page on currency competition, a topic that is extremely under-represented in essentially every avenue of cultural signficance. Anyone who wants to help bring this article up (and eventually to featured status) is welcome to do so. JHMM13 (Disc) 20:17, 11 May 2008 (UTC)
This section may require cleanup to meet Wikipedia's quality standards. No cleanup reason has been specified. Please help improve this section if you can. |
This article possibly contains
original research. (March 2008) |
Fiat money is typically backed by the good faith of the government maintaining or backing the money supply, importantly faith that it will accept the fiat currency in payment of taxes. For example the Federal Reserve banks of the United States maintain that US currency is backed by all the goods and services in the US economy. [2]. Hence, the credibility of the government's policy would, in theory, impact the decisions of consumers and producers in a market economy. Under this assumption, economic actors might make decisions they would otherwise not make for fear that the currency or money that they hold will change in value radically. Managing this risk could produce economic distortions: when people convert money to other forms, increasing the demand for goods to be hoarded. Economic actors might also shelter income in other, more stable currencies or charge higher interest rates. citation needed
Under a fiat money system, money ceases to be a commodity like others, and begins to have special and peculiar properties. Instead of focusing on production, investment and consumption, economic actors begin to attempt to divine the actions of government. Since actors can have foreknowledge of government actions in a way they cannot have of a market, this could lead to efforts to bribe, control or curry favor with the entities holding fiat power. citation needed
Fiat money is also closely tied to government borrowing for expenditures that do not have a clear social return, or which may have negative expectations, such as wars of conquest. citation needed Governments could pay for wars using fiat money, rather than in hard currency or specie, on the belief that the returns of war will be sufficient to pay promised notes, and that during wartime shortage and austerity, goods are not available in any case. This has seldom proven to be the case in the absence of strong inflationary controls. Instead, the usual cycle is for the value of fiat notes to trade at a significant discount to portable and stable forms of exchange, specifically those that will be tender regardless of the winning side in the conflict. A variation on this was the use of fiat occupation currency to place the burden on other areas.
Fiat money is also associated with attempts to control trade citation needed: If individuals possess notes which are not redeemable outside of the control of a government, the idea is that they will have to purchase preferentially within the boundaries of the nation, rather than importing; see Protectionism. It was David Hume who first argued that this merely leads to inflation by the quantity theory of money, even if the money is backed by specie.
Another aspect of fiat money is its relation to property rights. citation needed Many economists who? argue that since a government that has control over its territory can requisition, confiscate or otherwise ban the use of specie within its boundaries, or suspend promise payments — as has often happened in the past citation needed — the presence of fiat manipulation of money is seen as being a signal that a government is intent on abrogating property rights for other purposes.
The opposing view who? is that governments do not immediately intend to confiscate or ban the use of specie within its boundaries, nor reduce the property rights of its citizens. Instead, a government may be oblivious to the root cause of hyperinflation (excessive increase in the money supply). Worse still, a government may be aware of the cause, but choose to ignore the problem as it is not one that will come to light in its current political term.
Some political economists who? argue that there is no such thing as fiat money, that governments can create fiat currency, but that the amount of money is determined by the valuation of the market place, and that attempts to create fiat currency beyond the demand for money generate inflation. In the words of Keynes, “Money doesn’t matter,” meaning that control of the money supply beyond limited boundaries will be adjusted for in the marketplace; see IS/LM model.
The idea that there is no such thing as fiat money is also consistent with the real bills doctrine. In this view, all paper and credit money is backed by the assets of the entity that issued it — usually by the gold and bonds of the central bank or the tax collecting ability of the government that issued it. Since all modern central banks do in fact maintain assets as collateral against the money they issue, one has to ask why these assets are universally held if, as quantity theorists claim, they are irrelevant to the value of the central bank’s money.
I've moved the section above out of the article and into discussion here pending its clean up. One or two citation flags might be permissible but the whole section is peppered with them and in this state it does a disservice to the rest of the article.
Bear in mind that this is a controversial subject over which widely differing views are held. Wikipedia requires citation for any material that is challenged or is likely to be challenged. Your safest bet here is to assume that material that does not include a source will be challenged and hence removed.
Think about the suitability of your sources too. For example, a website that profits from trading precious metals may have vested interests and, consequently, a particular view of the subject. Such source doesn't necessarily mean it can't be referred to at all, but it should at least require further qualification.
I've left the section originally entitled "Credit-based monetary systems, where feedback mechanisms prevent Fiat money" in the main article for the moment, though its title is now shortened to simply "Feedback in credit-based monetary systems". As with the above it could also do with some references, but I haven't challenged it just now.
There are also the closing paragraphs in the "Convertibility" section. Again, I'll get to that later if someone else doesn't fix it first.
-- SallyScot ( talk) 20:41, 25 July 2008 (UTC)
Do we really need the legal definition of "fiat" right at the top despite the banner with a link to wiktionary? Zain Ebrahim ( talk) 17:43, 17 September 2008 (UTC)
In 1697 Thomas Neale organised the "Malt Lottery" and the tickets were used as currency, even paying naval offficers salaries in them. Does anyone know anything else about this ?-- Streona ( talk) 20:25, 12 November 2008 (UTC)
First half is unsourced blather. Second part is a summary of one not particularly notable point of view about money. The article would be better without them. -- Sjsilverman ( talk) 02:33, 26 November 2008 (UTC)
I do not understand the meaning of this section/section heading. It holds no or very little information on geographical spread of fiat currency systems, but seems to imply that such systems are unnecessary or harmful. While this might be true it has very little to do with anything geographical. As I understand it most countries in the world has adapted fiat currency as legal tender. A map or a list of these countries might be both informative and useful. Do any one have a source for worldwide monetary system types? -- Thorseth ( talk) 12:07, 16 December 2008 (UTC)
Geographical range of use
Fiat money is used as the main system of payment by almost every government on earth citation needed. Given that the system must be backed by a government, the fiat money will normally lose it's value if no functioning government is in place to guarantee the ascribed value. However this is not always the case, the so-called Swiss dinar continued to retain value as a type of credit money in Kurdish Iraq, as a result of backing by private banks and acceptance from individuals there, even after its fiat-money status was officially completely withdrawn by the backing government (the central government of Iraq). [3]
In areas where no government is present, such as failed states, or where government policies have caused hyperinflation the official monetary system is often abandoned and barter or foreign currencies are used.
A large economy may function on credit money which is not fiat money, such as United States paper currency during periods prior to 1913.
A mixed case where a credit money note is only partly backed by the full credit of the government involves Banknotes of the pound sterling. Although only those pound sterling notes issued by the Bank of England are directly backed by government credit and thus technically "legal tender," the pound sterling banknotes issued by certain other authorized banks in the U.K. still function equally as money in the U.K. This is because there is an indirect mechanism of government backing where these other banks are required by law to have a sum of money in an account in the Bank of England equal to the total sum of sterling notes they have issued. [4]
Yes, I can see from the citation that he is an academic/economist at the University of California, but can we do better than that? We don't tend to cite individuals by name unless they are personally notable - a good guide is "is their an article about them"? In this case there isn't. So unless such can be written, the text needs to change to say "Some academic enconomists argue ..." -- John Maynard Friedman ( talk) 20:29, 30 December 2008 (UTC)
since it's in fashion nowadays for conspiracy theories (especially because of 'Zeitgeist') to trasmit the idea that fiat currency is 'teh evil. fs 20:15, 8 January 2009 (UTC)
Criticism is appropriate.
Fiat currency is criticized for creating inflation. Michael H 34 ( talk) 23:04, 14 January 2009 (UTC) Michael H 34
I have no idea why, but Mr. Friedman has recently left a comment on my user talk page saying that I was biased in my edit. I have clear knowledge of the topic as a writer, speaker and investor and merely added well referenced historical facts regarding the figures who have criticized fiat money. That my expertise in this field somehow disqualifies me is laughable. -- Prestonp ( talk) 01:54, 22 January 2009 (UTC)
AFAIK, no currencies today are on a gold standard, or other standard, where I can go in to the bank and swop the notes for gold, silver or some there valuable commodity. Even currencies which a pegged, are all ultimately pegged to somebody else's Fiat Currency. Can anybody comment? TiffaF ( talk) 09:28, 26 January 2009 (UTC)
May I draw editors attention to Wikipedia:Fringe theories. Where the works of people who have no experise in the subject are cited, it is important in complying with WP:NPOV to make that clear. -- John Maynard Friedman ( talk) 00:06, 4 February 2009 (UTC)
Why is expertise in economic theory a relevant characteristic for providing criticism in this article? Are you suggesting that there is something in the criticism attributed to Griffin that should be labeled as fringe theory? Michael H 34 ( talk) 15:32, 4 February 2009 (UTC) Michael H 34
This site is nonsense. It claims that the case was never legally be overturned, nor can it be. Well, the Supreme Court of Minnesota thought differently, and held the attorney Jerome Daly in contempt for ignoring a superior court's order staying the absurd ruling from this Justice of Peace Mahoney (who was not even a licensed attorney):
Don't re-add this case. Cool Hand Luke 21:19, 13 February 2009 (UTC)
For what it's worth, this same Jerome Daly had other, more serious problems as well. See United States v. Daly, 481 F.2d 28, 73-2 U.S. Tax Cas. (CCH) paragr. 9574 (8th Cir.) (per curiam), cert. denied, 414 U.S. 1064, 94 S. Ct. 571 (1973). Daly was convicted of willfully failing to file federal income tax returns for the years 1967 and 1968. In rejecting his appeal, the United States Court of Appeals for the Eighth Circuit noted: "Defendant's fourth contention involves his seemingly incessant attack against the federal reserve and monetary system of the United States. His apparent thesis is that the only 'Legal Tender Dollars' are those which contain a mixture of gold and silver and that only those dollars may be constitutionally taxed. This contention is clearly frivolous." Id. Regarding Daly's disbarment in Minnesota, see also In re Daly, 291 Minn. 488, 189 N.W.2d 176 (1971) (per curiam). Famspear ( talk) 21:32, 15 February 2009 (UTC)
The last sentence in the following excerpt from the "criticism" section should be removed.
The Austrian School of Economics has long held that no sound economy can long endure under fiat money, with prominent Austrian Economist Ludwig von Mises arguing in this book Human Action that, "What is needed for a sound expansion of production is additional capital goods, not money or fiduciary media. The credit boom is built on the sands of banknotes and deposits. It must collapse." However, the Austrian School is outside the mainstream of contemporary economics.[14]
The last sentence above creates the logical fallacy of argumentum ad populum (Latin: "appeal to the people"), in logic, is a fallacious argument that concludes a proposition to be true because many or all people believe it; it alleges that "If many believe so, it is so." The criticism is stated, and then the second sentence characterizes the criticism as a minority view, which engages in the fallacy just listed. This is the "criticism" section, not the "criticism of the criticism" section. The language is also biased. If the criticism of the criticism should stand in this section, the cliche "outside the mainstream", which has a negative connotation, should be re-worded to eliminate bias. I've looked through Wikipedia articles with "criticism" sections, and I cannot find a similar biasedly written criticism of a criticism. You certainly won't find it on the entries "Capitalism" or "Marxism". It should not be here. 76.105.195.53 ( talk) 01:54, 5 March 2009 (UTC) Also, the reference for the second sentence links to the opinion paper written by one assistant professor. This is an opinion paper, not a scientific study. The assistant professor even states his bias in his opinion paper:
Needless to say, I have many friends who think more highly of Austrian economics than I do.
One person's opinion does not an idea outside of the mainstream make. 76.105.195.53 ( talk) 02:01, 5 March 2009 (UTC)
If anyone could cast light on the orgin of the term 'Fiat money' that would be a great addition. Using the Google archive search, the term appears to have popped into existence in 1878. - Crosbiesmith ( talk) 18:25, 8 March 2009 (UTC)
About two thirds of this section is totally unreferenced. The remainder appears to be the unpublished theory of Michael Sproul. I will remove this material if sources are not available. - Crosbiesmith ( talk) 21:03, 9 March 2009 (UTC)
The section 'Fiat money and the concept of legal tender' makes no mention of fiat money. All the material in it concerns legal tender. There is no attempt to link the two concepts. I will delete this section in due course. - Crosbiesmith ( talk) 07:47, 21 March 2009 (UTC)
The result of the proposal was PAGE MOVED per discussion below. The history was broken, actually, from a cut-and-paste move from Fiat money to Fiat currency in December '05. The history is patched back together now. If there's anything I missed, please let me know. Oh... I suppose I should move this talk page, too. - GTBacchus( talk) 03:19, 27 March 2009 (UTC)
I have requested a page move from fiat currency to fiat money. 'Fiat money' is the more commonly used term. This title would also be consistent with the credit money and commodity money articles. - Crosbiesmith ( talk) 15:23, 21 March 2009 (UTC)
Thanks, GTBacchus. Nice job on the patch up and move. It's not perfect but it continues to improve. S B H arris 03:23, 27 March 2009 (UTC)
WP articles should not be so technical as to be unintelligible to the Average Reader, nor should they be subtly biased so as to support one school of thought over another school.
I think this article falls on its face in both respects. One is easier to see than the other, though. There is much detailed analysis about the history of various sorts of money (fiat money, credit money, specie money, tax backed money, ...), but the effect, as with so much economic writing is more fog than clarity. WP articles should be better written and more understandable than that. Even in a field as bestrewn with arcane experts and expertise, much of it mutually exclusionary. Someone who understand the field and its jargon and who can write clearly is badly needed.
ON the second point, there is a sense (to this reader at least) that the underlying approach of the article is discussion of a dodgy business, this fiat money. One which is fraught with problems and fraud. Regrettably, this leaves unsaid that currency manipulation is known to have predated by a long time the invention of fiat money by the Chinese (if it was they who did so -- the article is not clear on that point just now -- a poor writing issue). Currency debasement was an issue early on in Anatolia if some of the Greek sources I dimly remember can be trusted, and it was certainly so recurrently throughout the history that we have not lost. A better account then would start with the clear statement that no fully satisfactory practical method of managing currency (and so a money supply. Indeed there is no mention here of the concept of a money supply and the necessity of some rough parity between the size of an economy and the size of its money supply).
All methods tried to date have had considerable troubles in actual practice. Layered on top of this patchy and dodgy experience is a bramble patch of theoretical analysis schools, each declaiming with solemn authority (backed by abstruse and exhaustive (well certainly exhausting) analysis) which purports to show, from first principles in each case, that this or that way of managing currency is the only sensible one. Thet they are mutually exclusive in most respects, seems not to affect the importance accorded to the economists and analysts who intone solemnly and portentously. Practical operators, who are devoted to one or another school, predictably those which benefit their interests, have demonstrated that they are unable to operate sensibly in practical applications, much less theoretical analysis.
If both practical (however implicitly including some theoretical perspective) and formally theoretical approaches are dubious as ways of judging this or that approach to currency structure, this should be reflected in this article and its parallel articles. It is not. And all this is the other hurdle this article trips over and so fails to reach any sort of satisfactory finish line.
Not being in the field, nor a sufficiently extraordinary writer, I can't myself fix this. Some editor surely is in a postion to do so. Please, take a whack at it. I don't think it can be really a lot worse, so the downside risk is low.
Anyone? ww ( talk) 01:09, 25 March 2009 (UTC)
But please remember that fiat money is not the only money, even in societies that have it. Every time you write an IOU or originate a loan, you create a "money." If you buy and sell loans (see various kinds of "credit derivatives"), you're printing your own money. The colapse of modern financial systems is not due to misuse of fiat money, but due to misuse of other instruments as tradable "money" when their backing (AAA ratings, etc.) was far shakier than anything done by "fiat" via the federal reserve system. S B H arris 23:38, 28 March 2009 (UTC)
User:Ivanleo removed the following statement from the text - 'Federal Reserve Notes receive no backing by anything.' The statement was taken from the Treasury Department web-page FAQs: Currency - Legal Tender Status. I added this statement to the lead. The reason I did so was because this same page was used to support the statement 'In another sense however, they are "backed" by all the goods and services in the United States economy'. To use the source to support the second statement without mentioning the first would be to quote the source selectively. If this source is used, both statements need to be given. Furthermore, as the article stands, the words 'in another sense' make no sense in the absence of the first statement. As the first statement has been removed, I will also remove the second. - Crosbiesmith ( talk) 17:11, 14 April 2009 (UTC)
User:Monoecus added the following today:
In monetary economics, fiat money is an intrinsically useless good used as a means of payment and a storable object. Whereas cash-in-advance models of money [5] assume the usage of fiat money to trade goods, fiat money arises endogenously in many micro-founded models of money [6] [7] as it makes some trades feasible that would not be feasible without it (because agents cannot write IOUs due to anonymity or physical constraints for example).
This is not an easy passage to understand. Monoecus, or others, would it possible to elaborate on the meaning of the following terms please?:
I understand that endogenously means 'within', more or less, but I don't understand what it is that fiat money is endogenous to here. Thanks - Crosbiesmith ( talk) 18:32, 17 April 2009 (UTC)
Hi guy's. Just discovered the Discussion here. Let me elaborate a bit. Fiat money is a very important concept in monetary theory, i.e. the economic theory of explaining why money (especially fiat money) exist. Fiat money in this sense is important to be fiat as it stands in contrast to capital for example which has a certain consumption/production value. Hence, this was a first paragraph to put in. There should be of course much more about it. I honestly disagree with some of the comments above that this is a topic to be left out of wikipedia. Monetary theory is a very big and important field and fiat money takes a big stake here. So, this belongs definitely into this article. I will try to make up some more interesting references. As there are certainly more than thousand research articles using the term fiat money, that is a big big thing which was completely missing in the previous article. So, watch out for more. If you have questions, I will come back to this discussion. Cheers. Monoecus —Preceding unsigned comment added by Monoecus ( talk • contribs) 05:12, 21 April 2009 (UTC)
Regarding the endogeneity, that is a very important point to be mentioned. Fiat money in certain models are imposed by assumption (i.e. cash in advance models) or arise because agents want (!) to use money to maximize their utility. I will elaborate on this better, as soon as I have time. —Preceding unsigned comment added by Monoecus ( talk • contribs) 05:15, 21 April 2009 (UTC)
User:Sbharris - in the section 'Value when a fiat money loses backing' you have added the source Economic Policy and Prospects in Iraq. This article does not mention fiat money. It does not discuss backing by private banks or acceptance by individuals. It does not support the claims made in the section. - Crosbiesmith ( talk) 20:26, 17 April 2009 (UTC)
I have questions about, "Alan Greenspan, Federal Reserve Chairman from 1987 to 2006, was an early critic of fiat money arguing in his essay, Gold and Economic Freedom, that . . ." Since fiat money has been around and controversial for a long time, how could he have been an early critic? Was this wording meant to convey "early in his career. . ." or something else? Also, isn't a comma needed before "arguing," or am I reading the sentence wrong? 68.83.72.162 ( talk) 18:45, 26 September 2009 (UTC)
This section claims that a 'strong private banking system and consensus of the population' may support the value of a fiat currency. This appears to be original research. Unless a reliable source can be found for this claim I will remove it. I have checked the provided sources - they do not support this claim. They demonstrate that the Swiss Dinar continued in use despite its loss of backing by the original government. They do not explain why it continued in use. - Crosbiesmith ( talk) 20:04, 31 October 2009 (UTC)
Determining what the purchasing power of a fiat currency will be, seems an ill explored area in economics. The only theory I have come across in my research of this area is Ludvig Von Mises' Regression theorem [3]. I think that some mention should be made of this work and or rival theories (if they exist). Reissgo ( talk) 23:38, 8 November 2009 (UTC)
A user at 85.24.170.53 added the claim "It derives the value it has from the beliefs from the economic actors." This seems to be based on the blog post Gold - a six thousand year-old bubble, though this is not made explicit. A blog-post is not a suitable reference for such a claim. I have tagged it as unsourced. - Crosbiesmith ( talk) 19:08, 17 November 2009 (UTC)
Kbrose - you added the Expert-subject tag to the article, giving the reason 'too much controversy in talk page, and too few reliable sources'. Can you indicate a specific controversy which merits the tag, and a specific claim from the article which is not reliably sourced please? If no specific criticisms are made I will remove the tag. Thanks - Crosbiesmith ( talk) 19:06, 27 November 2009 (UTC)
Keynes defined fiat money as follows:
Fiat Money is Representative (or token) Money (i.e something the intrinsic value of the material substance of which is divorced from its monetary face value) - now generally made of paper except in the case of small denominations - which is created and issued by the State, but is not convertible by law into anything other than itself, and has no fixed value in terms of an objective standard.
(John Maynard Keynes (1965) [1930]. "1. The Classification of Money". A Treatise on Money. Vol. 1. Macmillan & Co Ltd. p. 7.)
I will add this to the article lead as an additional defintion. - Crosbiesmith ( talk) 17:00, 28 December 2009 (UTC)
The current article states "Fiat currency was anathema to American president Andrew Jackson. Jackson went so far as to pass the Specie Circular in 1836, which required all payment for government lands to be in gold or silver coin." This is unsourced. I doubt there is a source as fiat money was not at that time in use in the U.S. The Specie Circular was intended to combat the use of bank-issued credit money, not fiat money. I will remove these claims shortly. - Crosbiesmith ( talk) 13:12, 30 December 2009 (UTC)
Also, the Mises criticism appears to be directed at a money-supply led credit expansion, not specifically at fiat money. I will remove this also. - Crosbiesmith ( talk) 13:20, 30 December 2009 (UTC)
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The definition at [1] sounds a little different...
The last paragraph says something like 'Between the end of World War II, ...' - that doesn't make sense, there should be two times for a 'between' statement. I had a quick look at the US dollar article to see if I could fill in the gap, but it's not clear to me what the period in question actually is. Can someone else fix it please? - S
The article leaves an impression that the gold standard was a kind of widespread historical standard without qualification other than that the silver standard was an alternative. In fact, the gold standard only became widespread quite recently, due to widespread western wealth. When societies were poor, the standard was whatever people could afford. Thus the usage of lesser metals like silver (the British pound was original a pound weight of sterling silver, thus Pound Sterling) or copper (Roman sestercii), or even non-metals.
Will someone correct it, or should I?
Is Ultra-conservative the right word to use in describing those who support the gold standard? I know that is an accurate description, but since conservative has formed a destint political meaning and most of those who oppose fiat currency are Libertarians should we develop a better term? -- Miked84 22:20, 14 December 2005 (UTC)
Ultra-conseratives is inappropriate. Changed to libertarians. Adding ultra to conservative is meaningless, and attributing the advocacy of hard money to conservatives is misleading and inaccurate. 72.147.32.103 02:32, 24 December 2005 (UTC)
Fiat Money = What your government forces you to pay as payment in taxes. You can't pay taxes to the government with Non Fiat Money. Both the Gold and Silver advocates and the Fiat Money advocates are incorrect and wrong.
The truth and fact is there is a cause and effect as to what a nation uses as money at the beginning of the money laws.
Sounds like a point of view and bad formatting to boot. Tinus 22:11, 24 December 2005 (UTC)
This article says fiat money is money with no intrinsic value, rather than money that is declared by the government to have value.
If true, that would be a change to the very top section of this article, at least.
dfrankow ( talk) 20:23, 26 November 2009 (UTC)
Federal Reserve Notes (FRN's) represent US Obligations, not US wealth. Currency does not necessarily have to be based on a "Gold" or "Silver" standard. The evolution of paper and coin currency in America was born of convenience, as individuals would deposit wealth (gold, silver, etc) at a bank for safe keeping. Banks would offer "Warehouse Receipts" in the sum of the deposit. Individuals would trade the receipts rather than withdrawing their wealth, paying their dues, only to have the recipient of said wealth redeposit the wealth back into the bank. By definition currency is a substitute for wealth, and required to be backed by a commodity that is universal and liquid. Federal Reserve Notes are neither, rather they are IOU's to be redeemed against future production. Additionally the Federal Reserve System also keeps reserves of foreign currencies, bonds, and other such assests, none of which are commodities, and are difficult to liquidate. Most Foreign currencies, bonds, like Federal Reserve Notes are not backed by a commodity thus their value is questioned.
Franklin Roosevelt, along with the Federal Reserve Bank, stole wealth from US citizens by way of Presidential Executive Order 6102 which outlawed the ownership of gold by private citizens. Essentially this can be looked at as a form of slavery as FRN's are symbolic of debt, not wealth. The collateral on said debt is the future productivity of the nation, i.e. its citizens. Citizens thus are required to pay the interest of said debt in the form of taxes through labor. After World War I England and most of Europe moved away from the Gold Standard and instead kept reserves of foreign currencies, especially FRN's. This in part is symbolic of our National Debt.
Foreign currency and bonds (especially triple A rates govt bonds, like those of France, Germany and the UK) are amongst the most liquid financial assets in the world. Furthermore, somebody's debt is someone else's credit, so your assertion that they do not represent wealth doesn't really make any sense. Your argument is self defeating, if debt isn't wealth, then a gold backed currency can't work because even when they were payable in gold, US gold certificates were simply debt (The US govt owes the bearer such and such an amount, ie it is in debt and promises to pay that debt in gold coin), and hence not wealth. You also state most foreign currencies are not backed by a commodity and hence their value is questioned, but you don't mention by whom.
In general, the Wikipedia articles (gold standard, fiat currency, related ones) need to attribute beliefs to the relevant economic schools of thought. Many of the statements in the current articles appear to be statements of faith, not fact, and they don't, in general, acknowledge which school of thought they are from. This BIG problem kind of overwhelms a lot of the little problems.
This article is one of the most biased, propaganda-filled articles on Wikipedia, and should probably be completely re-written. It is full of arguments and rhetorical questions, rather than a simple statement of facts and information. One would hope that the article presents different viewpoints equally, instead of one viewpoint, the opposing viewpoint, and then why the opposing viewpoint is wrong. Information on this articleis controlled by people who feel strongly about one position on the subject, and they are the only ones who bother to write and edit the article. In short: this article is what's wrong with Wikipedia.
I have several problems with this article but let's just start with the first sentence:
OK. I'll stop there, for now. Paul Beardsell 04:15, 6 January 2006 (UTC)
What if, on the currency, it's stated THIS NOTE IS LEGAL TENDER AT MCHAPPY'S BURGER STAND, here is example of legal tender where no gov't is required, before it is considered legal to tender. Marvelous marvin ( talk) 16:21, 1 March 2008 (UTC)
@Marvin - If the government isn't involved than it isn't LEGAL tender. This would more or less be called... a coupon. The word legal is usually indicative of government or "law" involvement. —Preceding unsigned comment added by 206.253.186.23 ( talk) 12:57, 12 March 2008 (UTC)
I find this statement deceiving:
"One recent example was the Argentine bust which followed the unravelling of its “currency board”. Instead of being linked to gold, the peso was linked to the U.S. dollar, which served as the hard money basis. When an economic crisis hit, dollar reserves fled the country, causing the monetary basis to collapse."
How can "dollar reserves flee the country", I think what must have happened is that they were spent. This hardly seems like a problem with the monetary system, but rather simply a reflection of a collapsed economy. If you spend all the money, you've spent all the money! In effect, wouldn't this be a testament to the success of the system, the government was not able to pretend that they hadn't spent all by simply printing more money, ensuring that the money did not inflate?
___________________________________________
Answer to "How can dollar reserves flee the country?"
If a central bank (in this case, Argentina) stands to exchange 1 - 1 with the US dollar, they issue pesos and hold dollars in reserve (to "Back" their currency).
If someone with a lot of pesos doesn't believe that the central bank has enough dollars to back their currency, or believe that the peso is overvalued (which is the same thing) they can engaged in a speculative attack. Basically, they sell pesos to the central bank and receive dollars. This drains the reserves in the central bank and often causes a devaluation in the currency. —Preceding unsigned comment added by 74.232.140.88 ( talk) 03:21, 14 February 2008 (UTC)
"A further illustration of the irrelevance of physical convertibility can be seen by supposing that a bank issues two kinds of paper dollars: one redeemable for one ounce of silver throughout the year and another redeemable for the same amount of silver, but only at the end of a year. If the market interest rate is 5%, and if it is costless to issue paper dollars, then the inconvertible dollar must start the year worth about .95 ounces, rise to about .97 ounces at mid-year, and finish the year worth exactly 1 ounce. Any other values would result in arbitrage opportunities. For example, if the inconvertible dollar started the year worth .96 ounces, then each time the bank received .96 ounces of silver in exchange for a newly-issued dollar, it could lend the .96 ounces at 5% interest, be repaid 1.01 ounces at year-end, pay off the paper dollar with 1 ounce, and earn a free lunch of .01 ounces.
What is the value of the convertible dollar? A little reflection will convince the reader that it too must start the year at .95 ounces, reach .97 ounces at mid-year, and finish the year at exactly 1 ounce. That is, the issuing bank must actually raise the amount of silver it will pay for a dollar over the course of the year, or arbitrage opportunities will result. For example, suppose that at the start of the year, customers can deposit .95 ounces and get one paper dollar in exchange — a physically convertible dollar that can be returned to the bank for .95 ounces if the customer desires. If that dollar remained at .95 ounces over the whole year, then at the end of the year the bank will have received a free lunch of .05 ounces — a free lunch that will attract rival bankers willing to pay 5% interest to the holders of their dollars."
How can any logic be derived from this example without specifying how the notes are issued to start with? They don't just get issued, they get sold, but at what price? How much silver is paid for these two notes to start with? Obviously at the begining of the year, one would pay the bank a full ounce for the note that is convertible (back to 1 ounce), but only .95 ounces for the one that wasn't! This example is therefore bogus.
I agree, I am going to remove those two paragraphs as it is more confusing (and erroneous I believe) than it is informative over what I see is something quite simple. A physically convertible currency is affected by the interest rate of the specie or commodity that is backing it. And by the way, no one knows what the actual interest rate for anything will be for the year. That would be the same thing as predicting the future. Also, a 5% interest rate would not increase 0.95 to 1; it would increase to 0.9975. 5% interest would raise 1 to 1.05.-- Acefox 00:10, 25 November 2006 (UTC)
I've wondered for a long time why people are willing to accept a currency that is not physically convertible. And "financially convertible" sounds to me too much like "bootstrapping", which is worrysome to me as a mathematician.
So I recently discovered some important fact of the media / ad industry, namely that adverts often promote something other than the owner of the relevant trademark. For example, shop owners will seldom put up a sign saying "Ice cold softdrinks available here". Instead they'd rather put up a "Coca-cola" sign, giving "Coca-cola" free media exposure.
Now many ads include prices e.g. "Coca-cola now only $1". Therefore currencies gets free media exposure almost everywhere you look. My guess is that this media exposure is of the order of a hundred of billion of dollars every year (based on global adspend). This means that the dollar is the largest brand to ever exist. It also means the brand equity of the dollar rivals the value of the gold backing the dollar.
I'm sure someone figured all this out before me, but why does the article not mention any of this ? -- Nic Roets 13:49, 6 August 2006 (UTC)
I put the warning due to this:
It doesn't make any sense and seems to assert as fact that whether or not there is a gold standard "doesn't really matter". In the example, what is going on? The customers deposited silver for a warehouse receipt entitling them to silver. Now, how does issuing bonds head off the run? The bank still has to pay those bonds with interest, despite doing nothing to increase its reserves. The passage would imply that I can start a storage facility for some asset, then pocket the asset for myself, and nobody would mind. If someone doesn't clarify what this passage is saying, I'm going to have to delete it. MrVoluntarist 16:26, 15 October 2006 (UTC)
I agree that it not neutral. Any suggestions on how to improve it? -- Benn Newman 16:27, 21 October 2006 (UTC)
I wrote the section on physical vs. financial convertibility (sproulmike@yahoo.com). Everyone agrees about physical convertibility--one dollar can be redeemed for one ounce. Financial convertibility seems to be misunderstood. It only means that a bank stands ready to use its bonds to buy back the dollars it has issued. For example, if the Fed believes there is too much cash in the hands of the public (usually evidenced by a low federal funds rate), it will sell bonds, thus soaking up the excess dollars. The importance of financial convertibility is to correct the common misconception that if a currency is not physically convertible, it is unbacked. A currency can in fact be physically inconvertible but still backed by the bank's assets, and the more diligent the bank is in maintaining financial convertibility, the less physical convertibility matters.
This is, as you said, similar to the real bills doctrine. There is a further discussion in a UCLA working paper entitled "There's No Such Thing as Fiat Money". I forget the number, but that's why we have google.
Okay, I'm going to take a stab at rewriting this section to say what I *think* was meant and without being POV or adding unnecessary suppositions. Here goes...
Thoughts? MrVoluntarist 02:11, 8 December 2006 (UTC)
While banks can mantain the value of the currency with "open market operations" almost making physical convertability redundent. Requiring them to allow physcial convertability forces them not to endlessly inflate the money supply.
Geoffsmith82
01:41, 15 December 2006 (UTC)
Financial convertibility means that a dollar is redeemable for a dollar's worth of stuff at the issuing bank--not that it is just acceptable in the market. If the bank didn't maintain financial convertibility then the money would lose value in the market. I don't think ths rewrite is an improvement. (Preceding unsigned comment by 67.49.42.239 aka Mike Sproul)
If a dollar is issued by a bank in exchange for a bond worth a dollar, then if that dollar is no longer wanted by the public, that dollar can be returned to the bank in exchange for a bond worth one dollar. That dollar is financially convertible. If the dollar cannot be returned to the bank for a bond worth one dollar, then the dollar is financially inconvertible. Obviously a dollar will buy a dollar's worth of stuff on the market, but that is not what financial convertibility means. For example, if the bank wants to maintain the value of a dollar at one ounce of silver, then if it sees the value of the dollar starting to fall, it can sell a dollar's worth of bonds for paper dollars, thus soaking up the unwanted dollar and keeping the dollar equal to one ounce. Thus, by conducting ordinary open market operations, the issuing bank can make physical convertibility unnecessary. (Preceding unsigned comment by 67.49.42.239 aka Mike Sproul)
It is tautological to say "a dollar is worth a dollar", but not to say "a dollar is worth an ounce of silver". Saying that the bank uses financial convertibility to maintain the dollar at one ounce is equivalent to saying that the bank uses open market operations to maintain the dollar at one ounce. In conducting those open market operations, the bank is continually exchanging paper dollars for a dollar's worth of bonds, but that does not mean the value of the dollar is indeterminate; it remains at one ounce. If, as you say, the bank threw away its assets, then of course the dollar would lose its value. A dollar would be worth zero ounces, though a dollar would also still be worth a dollar. (This seems to be what GeoffSmith was getting at above.) BTW: Are you adding my name to these posts on purpose? It's no big deal, but if I were worried about my privacy it might be. I assume you go by "MrVoluntarist" because you also don't want your name displayed.
Real banks back their dollars with "a dollars' worth" of assets, so in the interest of realism I listed the assets partly as silver and partly as dollar-denominated bonds. The trick about dollar-denominated assets is that they present the possibility of inflationary feedback: Let's say the bank is robbed of some of its silver, and the dollars fall in value as a result. But now the dollar-denominated bonds fall too, which leads to a further fall in the value of the dollar, etc. This can be described algebraically as follows: Let E=the exchange value of the dollar (oz./$), and suppose the bank has issued 300 paper dollars, worth E oz. each, and backs those dollars with 100 oz of silver, plus bonds worth $200. Since assets must equal liabilities, we get 100+200E=300E, which yields E=1 oz./$. But if, as above, the bank is robbed of 50 oz., this becomes 50+200E=300E, or E=.5 oz./$. Note that if the bank had held 300 oz as its assets, the same loss would have yielded E=250/300.
As for bonds being denominated in future dollars, it is a simple matter to suppose that the bank holds bonds that promise $220 in 1 year. At 10% interest the bonds are worth $200 today. I know some people worry about what happens if there aren't enough dollars to pay the interest in dollars, but any rational lender would accept his interest payment in silver or something else.(Preceding unsigned comment by 67.49.42.239 aka Mike Sproul)
Looking back at the article, it does not directly mention the "dollars' worth" problem. I'm open to suggestions, but my first reaction is that this would just take the discussion too far afield. Since, as you say, this is a notoriously confusing issue, maybe some discussion is warranted, but that's why wikipedia has this discussion page. As for the quotal share point: First, the phrase is so rarely used as to be nearly Greek to the average reader. Second, it glosses over the inflationary feedback problem. I'm fine with saying that financial convertibility doesn't require the bank to redeem (for silver) on demand. It is, however, wrong to say that financial convertibility means that a dollar can be redeemed somewhere other than the issuing bank. The defining characteristic of a financially convertible currency is that it can be redeemed for a dollar's worth of assets AT the issuing bank. Put another way: it is the issuing bank that conducts open-market operations, not the general public.
As long as quotal share means what the formula says, I don't have a problem with it. Normally financial convertibility is exercised at the bank's option. The bank sees the value of the dollar dropping and so it sells bonds. But two things occur to me: 1) In principle, physical convertibility could also be at the bank's option, and (2) If people borrowed money from the bank, and they chose when to pay it back, then financial convertibility is at the customer's option. You're correct that if a bank refuses financial convertibility, then the value of the dollar would drop--to the discounted present value of the expected eventual payoff--which might be zero.
wikipedia is full of comunists
Quotal share means nothing, and is easily the most confusing pair of words on this page. 'Quotal' does not appear in dictionaries, and is apparently some kind of neologistic wiki-jargon. The phrase 'open market operations', on the other hand, has a well known meaning, with respect to central (currency-issuing) banks. Open market bond sales are the mechanism by which the Fed maintains its target interest rates, by draining the financial system of excess reserves which would otherwise be lent out at lower rates. Go read a book, and stop drinking the free market koolaid. —The preceding unsigned comment was added by 24.22.108.122 ( talk) 08:39:38, August 19, 2007 (UTC)
I think this article is misusing a term "dollar" in a large scale. For example: "A unit of paper or credit money (a “dollar”)" in convertibility section. 'Dollar' is NOT a unit of money, dollar is a NAME of US (and few other countries') currency unit. Article like this should use more general terms. Daddy32 —Preceding comment was added at 12:51, 21 January 2008 (UTC)
I agree with Daddy32 that when the price of something is stated, use the ratio of goods it's denominating. Also, in terms of issuing bonds to 'back' the currency - the only reason a bank would do this is because its reserve ratio is less than 100% and it uses its goodwill with customers to make up the difference. If the example is under 100% reserve, the person returning the fiat notes would just be selling his silver in return for a bond. If the bank issued notes at 1 note=1 oz silver, and issued 100, the person who didn't want 1 note would give it back, and that 1 oz silver would go back to him. Then, he could buy a bond at whatever rate for 1 oz of silver, and the bank would have to find a way to make a return higher than the yield. Under a 100% reserve system these two operations would be completely separate, which the reserve ratio could be determined by an audit. If the bank does not have physical possession of what is backing the notes, then the bank has counterfitted. The bond operation would have to back its products with something other than the reserve of the bank, because all that money is spoken for. 143.115.159.54 ( talk) 17:20, 3 March 2008 (UTC)D-Unit
The article as a whole, and this section in particular, is massively short of citation and attribution. This section reads like a debate between opposing contributors and is a synthesis of their views. (The SYN tag usually applies to an editor drawing his own inferences from cited material. Since no citations have been provided, one could argue that it is not the best tag, but it is better than NPOV). Frankly I'm astonished that this article was awarded GA. -- John Maynard Friedman 16:55, 15 August 2007 (UTC)
However, the next section which follows is a bunch of Marxist and anti-Marxist rants about whether or not this extra layer of government guarantee is a good thing or not (Marxists, who love government, apparently think it is). But whether these things are "good" or not, or even most of the debate about whether they are "good" is outside the scope of this article. Summarize shortly and put it in the article on Marxist economic theory, or something. We don't need the whole debate. The types of money are what they are, and nothing but a pointer needs to go to other article(s) debating on the utility or "trueness" or helpfulness or goodness of each of them.
[And by the way, if credit money is a giant hoax perpetrated by capitalists, then show me the Marxist or Communist State which isn't glad to get credit from the rest of the world. If they can't get it, and their fiat money is worthless (see Cuba) it's only because they have tended to be theives about investment from other countries, and now nobody trusts them. That's what happens with credit: if you're not credible, nobody trusts you.] S B H arris 22:36, 29 October 2007 (UTC)
Why is there a few lines devoted to the Liberty Dollar, with obvious bias no less. Why has it stood for so long? If a contributor really cares about the Liberty Dollar they should make a new article and include a link to that article. I am removing those lines for the moment. —Preceding unsigned comment added by 209.240.89.251 ( talk) 02:38, 3 November 2007 (UTC)
1) Try sticking to common language usage when explaining something. "Quotal", if it is a word, is very rare. If you must use it, define it or link it.
2) Talking about '1 dollar = 1 oz silver' can be confusing in a theoretical example, because silver really has been used as a commodity. Try dumbing down the GDP/productivity guarantee to something like '50 cows and 500 sheep', so each of the 100 dollars is 'worth' 0.5 cow + 5 sheep (BTW, this neatly leads to a discussion of specie exchange rates, where 1 cow = 10 sheep) -- 72.1.212.20 21:41, 21 September 2007 (UTC)
Wouldn't this read better if written in the form of "An argument is/can be" instead of "They argue"? The way it is written now it reads as though the arguments are false. 85.165.222.180 ( talk) 19:50, 19 November 2007 (UTC)
This topic is in need of attention from an expert on the subject. The section or sections that need attention may be noted in a message below. |
This is an important article and, as remarked above, does not do justice to the subject. The entire article needs a thorough review by an expert. -- John Maynard Friedman ( talk) 14:04, 7 January 2008 (UTC)
I object to the call for an "expert" as contrary to the spirit and genius of Wikipedia. Wikipedia is precisely that information source that frees users from the developed interests (biases) of experts. It also flies in the face of the "anonymity" of contributors (not in the sense that contributors can't be identified at least to their other contributions, but that totally adequate contributors can be persons who completely lack the sort of credentials apparently being called for in the notice I find attached to the top of this article. This article IS important, but it bears on anyone and everyone who uses money. God help us if the subject can't be explained by non-experts. -- Joe ( talk) 03:50, 16 December 2008 (UTC)
I chopped the following text out of the article, it seems to be more appropriate in a general history of currency, rather than this article which focuses on fiat currency:
Historically, the names of the individual coins and the names of the unit of account were identical, e.g. a
shilling was both a type of coin and a unit of account. The law would therefore recognize tender of those coins as legal satisfaction for debts denominated in that unit of account. Different-mass coins of the same metal could explicitly be recognized as being legally valued at fixed multiples of each other in their names (e.g. in the case of the
crown and
half-crown) or simply by reference to their legal masses (e.g. the legal mass of a
florin is twice that of a
shilling). A government could legislate for the minting of a system of metallic currency, including the fineness of the metal and the legal and original masses of the coins, without legislating for legal tender or legal values of the coins themselves — they can be discovered or implied by the ratios of legal masses of fine metal in each species of coin.
Coins of different metals naturally resist incorporation into a common unit of account, and therefore of a common legal tender value system. Governments have historically attempted to fix the legal values of different metallic coins to create a unified unit of account and standard of legal tender for payments large and small. Two mechanisms have been used in this connection: multi-metalism and token coinage. The former took the form of bimetallism, where both gold and silver coins were given legal values in terms of each other. e.g. gold coin was legally valued by nominal mass at 15 times silver coin. As market forces changed the actual value of gold in relation to silver, one coin would become overvalued in reference to the other. For example, suppose there were two coins, a shilling being 6 grams of fine silver, and a sovereign being 8 grams of fine gold. If the unit of account were the shilling, then the legal value of a sovereign would be 20 shillings, and a debtor could discharge a debt of 100 shillings with five sovereign coins or 100 shilling coins, at his option. Debtors will nearly always choose the cheapest way to discharge their debts, and this results in the constant threat of demonetization of a legally over-valued metal. Token coinage adopts the coins of the higher value metal as the monetary standard, and limits the lower value metal coins to fractional currency. This is done by deliberately over-valuing the legal tender value of the lower value metal coins and limiting the total amount for which they can be legal tender in any one payment. For example in 1816 the English silver currency was lightened by 6% and the limit of the legal tender of 40 shillings per payment was imposed. Such token currency is clearly fiat currency, as it is only by government fiat that the coin can be received at its legal value.
Over time multi-metallism was replaced by gold mono-metalism, via composite standards where gold coin was unlimited legal tender and silver and copper coins were lightened, limited and converted into tokens.
Bank notes as legal tender by government fiat originate from the advent of central banking. Central banks are banks of issue that are owned, sponsored or favoured by the government. Bank notes are negotiable instruments, being promissory notes issued by a bank and payable to bearer on demand. Central banks are generally favoured with monopoly rights to issue bank notes, and/or for these notes to have the status of legal tender. Alternatively, currency notes can be issued directly by the government or its non-bank agencies, and/or the government can favour selected commercial banks by making their notes legal tender (as in Hong Kong). It is important to note that paper money and fiat currency are not the same. For example, Scottish commercial banknotes act as money, but are not legal tender and therefore not fiat currency.
Aatombomb (
talk)
19:27, 7 January 2008 (UTC)
The whole lead seems overloaded and much of this is addressed elsewhere in the article.
Without government demand for certain kinds of paper as legal tender, such as bank notes, only specie is unlimited legal tender. However this is not universally true, as some currencies, (notably sterling issued by Scottish banks [1]), are not legal tender but are accepted by longstanding confidence (Scotland technically has no note of legal tender and thus no fiat money-- see Pound Scots).
A bank of issue whose notes enjoy legal tender status by government fiat can use its own notes, making their redemption in specie optional — a matter of the 'monetary policy' of the bank in question. Historically, the institution of fiat currency has preceded and enabled the demonetisation of specie, via a monetary policy decision not to offer payment in specie at par, e.g. by suspension, devaluation or redemption in bullion or foreign currency instead. Eventually this leads to no form of payment, redemption or exchange whatsoever being offered by the issuer and a system of freely floating national currencies, none of which is "redeemable" by fixed amounts of specie or any given commodity.
Aatombomb ( talk) 20:11, 7 January 2008 (UTC)
I'd like to add Josua A. Norton in here somewhere. He is a notable case of an individual who issued fiat money that was apparently actually accepted as currency by some residents of San Francisco.
Aatombomb ( talk) 17:10, 11 January 2008 (UTC)
Some of the careful distinctions between these kinds of money (and examples of them) have been removed from this article. Er, not to be impolite, but in some cases, by YOU. S B H arris 17:41, 11 January 2008 (UTC)
Wikipedia is designed to reject and expel experts in favor of the nonsense promulgated by the administrators and bureaucrats. I'm not helping the inmates run the asylum they've built for themselves out of compressed particle board and barbed wire. —Preceding unsigned comment added by 67.101.123.88 ( talk) 17:03, 23 January 2008 (UTC)
The article now says that fiat money can be issued on authority of a bank, without the government having an opinion. I don't think that's right. The last is "credit money", an important concept in itself. Fiat money is a SUBSET of credit money, in which the government has become creditor(lender)-of-last-resort. In otherwords, it's the government's credit, not the bank's alone. These things should be carefully spelled out here. Fiat currency appeared in the US only during the American Civil War, in the form of greenbacks, backed by US bonds. Before that, in the period between failures of the US bank (back to Jackson) all paper currency was banknotes from state or private banks and was credit money only. S B H arris 21:13, 29 February 2008 (UTC)
The lead section says:
There has never been a form of money that has retained its value as fiat money once the backing government's tax enforcement powers have waned
Easily disproven by the counter-example of the Swiss dinar:
During this period the Swiss dinar was endorsed by no central authority or government (in fact it was a disendorsed currency) and was not redeemable by any issuing agent, or backed by any commodity. Its persistent and sustained market value derived purely from its utility as a culturally accepted medium of exchange. As such it is often cited in economic discussions about money and the origin of money's value.
Do you agree with me that this is wrong, and that we need to change the lead section? — Ksero ( talk | contribs) 19:58, 17 March 2008 (UTC)
I think that this has become a rather controversial topic(at least in the United States, with the elections and whatnot; esp. Ron Paul & Stances) and i just wanted to hark on the fact that the primary portion, the "bulk", of this article seems to have remained unchanged since before most, if not all of the article flags (NPOV, Expert needed, etc.) were posted. I think this is controversial(as i said) (&part of the reason this probably became flagged) and that although most of the data is unverified and isn't exactly NPOV, it IS good data and shouldn't be tossed aside carelessly. Heavily re-worded, and cited, but not thrown out. 137.49.222.44 ( talk) 20:05, 7 May 2008 (UTC)
Just as a heads up to those who edit this article regularly. I have created a separate page on currency competition, a topic that is extremely under-represented in essentially every avenue of cultural signficance. Anyone who wants to help bring this article up (and eventually to featured status) is welcome to do so. JHMM13 (Disc) 20:17, 11 May 2008 (UTC)
This section may require cleanup to meet Wikipedia's quality standards. No cleanup reason has been specified. Please help improve this section if you can. |
This article possibly contains
original research. (March 2008) |
Fiat money is typically backed by the good faith of the government maintaining or backing the money supply, importantly faith that it will accept the fiat currency in payment of taxes. For example the Federal Reserve banks of the United States maintain that US currency is backed by all the goods and services in the US economy. [2]. Hence, the credibility of the government's policy would, in theory, impact the decisions of consumers and producers in a market economy. Under this assumption, economic actors might make decisions they would otherwise not make for fear that the currency or money that they hold will change in value radically. Managing this risk could produce economic distortions: when people convert money to other forms, increasing the demand for goods to be hoarded. Economic actors might also shelter income in other, more stable currencies or charge higher interest rates. citation needed
Under a fiat money system, money ceases to be a commodity like others, and begins to have special and peculiar properties. Instead of focusing on production, investment and consumption, economic actors begin to attempt to divine the actions of government. Since actors can have foreknowledge of government actions in a way they cannot have of a market, this could lead to efforts to bribe, control or curry favor with the entities holding fiat power. citation needed
Fiat money is also closely tied to government borrowing for expenditures that do not have a clear social return, or which may have negative expectations, such as wars of conquest. citation needed Governments could pay for wars using fiat money, rather than in hard currency or specie, on the belief that the returns of war will be sufficient to pay promised notes, and that during wartime shortage and austerity, goods are not available in any case. This has seldom proven to be the case in the absence of strong inflationary controls. Instead, the usual cycle is for the value of fiat notes to trade at a significant discount to portable and stable forms of exchange, specifically those that will be tender regardless of the winning side in the conflict. A variation on this was the use of fiat occupation currency to place the burden on other areas.
Fiat money is also associated with attempts to control trade citation needed: If individuals possess notes which are not redeemable outside of the control of a government, the idea is that they will have to purchase preferentially within the boundaries of the nation, rather than importing; see Protectionism. It was David Hume who first argued that this merely leads to inflation by the quantity theory of money, even if the money is backed by specie.
Another aspect of fiat money is its relation to property rights. citation needed Many economists who? argue that since a government that has control over its territory can requisition, confiscate or otherwise ban the use of specie within its boundaries, or suspend promise payments — as has often happened in the past citation needed — the presence of fiat manipulation of money is seen as being a signal that a government is intent on abrogating property rights for other purposes.
The opposing view who? is that governments do not immediately intend to confiscate or ban the use of specie within its boundaries, nor reduce the property rights of its citizens. Instead, a government may be oblivious to the root cause of hyperinflation (excessive increase in the money supply). Worse still, a government may be aware of the cause, but choose to ignore the problem as it is not one that will come to light in its current political term.
Some political economists who? argue that there is no such thing as fiat money, that governments can create fiat currency, but that the amount of money is determined by the valuation of the market place, and that attempts to create fiat currency beyond the demand for money generate inflation. In the words of Keynes, “Money doesn’t matter,” meaning that control of the money supply beyond limited boundaries will be adjusted for in the marketplace; see IS/LM model.
The idea that there is no such thing as fiat money is also consistent with the real bills doctrine. In this view, all paper and credit money is backed by the assets of the entity that issued it — usually by the gold and bonds of the central bank or the tax collecting ability of the government that issued it. Since all modern central banks do in fact maintain assets as collateral against the money they issue, one has to ask why these assets are universally held if, as quantity theorists claim, they are irrelevant to the value of the central bank’s money.
I've moved the section above out of the article and into discussion here pending its clean up. One or two citation flags might be permissible but the whole section is peppered with them and in this state it does a disservice to the rest of the article.
Bear in mind that this is a controversial subject over which widely differing views are held. Wikipedia requires citation for any material that is challenged or is likely to be challenged. Your safest bet here is to assume that material that does not include a source will be challenged and hence removed.
Think about the suitability of your sources too. For example, a website that profits from trading precious metals may have vested interests and, consequently, a particular view of the subject. Such source doesn't necessarily mean it can't be referred to at all, but it should at least require further qualification.
I've left the section originally entitled "Credit-based monetary systems, where feedback mechanisms prevent Fiat money" in the main article for the moment, though its title is now shortened to simply "Feedback in credit-based monetary systems". As with the above it could also do with some references, but I haven't challenged it just now.
There are also the closing paragraphs in the "Convertibility" section. Again, I'll get to that later if someone else doesn't fix it first.
-- SallyScot ( talk) 20:41, 25 July 2008 (UTC)
Do we really need the legal definition of "fiat" right at the top despite the banner with a link to wiktionary? Zain Ebrahim ( talk) 17:43, 17 September 2008 (UTC)
In 1697 Thomas Neale organised the "Malt Lottery" and the tickets were used as currency, even paying naval offficers salaries in them. Does anyone know anything else about this ?-- Streona ( talk) 20:25, 12 November 2008 (UTC)
First half is unsourced blather. Second part is a summary of one not particularly notable point of view about money. The article would be better without them. -- Sjsilverman ( talk) 02:33, 26 November 2008 (UTC)
I do not understand the meaning of this section/section heading. It holds no or very little information on geographical spread of fiat currency systems, but seems to imply that such systems are unnecessary or harmful. While this might be true it has very little to do with anything geographical. As I understand it most countries in the world has adapted fiat currency as legal tender. A map or a list of these countries might be both informative and useful. Do any one have a source for worldwide monetary system types? -- Thorseth ( talk) 12:07, 16 December 2008 (UTC)
Geographical range of use
Fiat money is used as the main system of payment by almost every government on earth citation needed. Given that the system must be backed by a government, the fiat money will normally lose it's value if no functioning government is in place to guarantee the ascribed value. However this is not always the case, the so-called Swiss dinar continued to retain value as a type of credit money in Kurdish Iraq, as a result of backing by private banks and acceptance from individuals there, even after its fiat-money status was officially completely withdrawn by the backing government (the central government of Iraq). [3]
In areas where no government is present, such as failed states, or where government policies have caused hyperinflation the official monetary system is often abandoned and barter or foreign currencies are used.
A large economy may function on credit money which is not fiat money, such as United States paper currency during periods prior to 1913.
A mixed case where a credit money note is only partly backed by the full credit of the government involves Banknotes of the pound sterling. Although only those pound sterling notes issued by the Bank of England are directly backed by government credit and thus technically "legal tender," the pound sterling banknotes issued by certain other authorized banks in the U.K. still function equally as money in the U.K. This is because there is an indirect mechanism of government backing where these other banks are required by law to have a sum of money in an account in the Bank of England equal to the total sum of sterling notes they have issued. [4]
Yes, I can see from the citation that he is an academic/economist at the University of California, but can we do better than that? We don't tend to cite individuals by name unless they are personally notable - a good guide is "is their an article about them"? In this case there isn't. So unless such can be written, the text needs to change to say "Some academic enconomists argue ..." -- John Maynard Friedman ( talk) 20:29, 30 December 2008 (UTC)
since it's in fashion nowadays for conspiracy theories (especially because of 'Zeitgeist') to trasmit the idea that fiat currency is 'teh evil. fs 20:15, 8 January 2009 (UTC)
Criticism is appropriate.
Fiat currency is criticized for creating inflation. Michael H 34 ( talk) 23:04, 14 January 2009 (UTC) Michael H 34
I have no idea why, but Mr. Friedman has recently left a comment on my user talk page saying that I was biased in my edit. I have clear knowledge of the topic as a writer, speaker and investor and merely added well referenced historical facts regarding the figures who have criticized fiat money. That my expertise in this field somehow disqualifies me is laughable. -- Prestonp ( talk) 01:54, 22 January 2009 (UTC)
AFAIK, no currencies today are on a gold standard, or other standard, where I can go in to the bank and swop the notes for gold, silver or some there valuable commodity. Even currencies which a pegged, are all ultimately pegged to somebody else's Fiat Currency. Can anybody comment? TiffaF ( talk) 09:28, 26 January 2009 (UTC)
May I draw editors attention to Wikipedia:Fringe theories. Where the works of people who have no experise in the subject are cited, it is important in complying with WP:NPOV to make that clear. -- John Maynard Friedman ( talk) 00:06, 4 February 2009 (UTC)
Why is expertise in economic theory a relevant characteristic for providing criticism in this article? Are you suggesting that there is something in the criticism attributed to Griffin that should be labeled as fringe theory? Michael H 34 ( talk) 15:32, 4 February 2009 (UTC) Michael H 34
This site is nonsense. It claims that the case was never legally be overturned, nor can it be. Well, the Supreme Court of Minnesota thought differently, and held the attorney Jerome Daly in contempt for ignoring a superior court's order staying the absurd ruling from this Justice of Peace Mahoney (who was not even a licensed attorney):
Don't re-add this case. Cool Hand Luke 21:19, 13 February 2009 (UTC)
For what it's worth, this same Jerome Daly had other, more serious problems as well. See United States v. Daly, 481 F.2d 28, 73-2 U.S. Tax Cas. (CCH) paragr. 9574 (8th Cir.) (per curiam), cert. denied, 414 U.S. 1064, 94 S. Ct. 571 (1973). Daly was convicted of willfully failing to file federal income tax returns for the years 1967 and 1968. In rejecting his appeal, the United States Court of Appeals for the Eighth Circuit noted: "Defendant's fourth contention involves his seemingly incessant attack against the federal reserve and monetary system of the United States. His apparent thesis is that the only 'Legal Tender Dollars' are those which contain a mixture of gold and silver and that only those dollars may be constitutionally taxed. This contention is clearly frivolous." Id. Regarding Daly's disbarment in Minnesota, see also In re Daly, 291 Minn. 488, 189 N.W.2d 176 (1971) (per curiam). Famspear ( talk) 21:32, 15 February 2009 (UTC)
The last sentence in the following excerpt from the "criticism" section should be removed.
The Austrian School of Economics has long held that no sound economy can long endure under fiat money, with prominent Austrian Economist Ludwig von Mises arguing in this book Human Action that, "What is needed for a sound expansion of production is additional capital goods, not money or fiduciary media. The credit boom is built on the sands of banknotes and deposits. It must collapse." However, the Austrian School is outside the mainstream of contemporary economics.[14]
The last sentence above creates the logical fallacy of argumentum ad populum (Latin: "appeal to the people"), in logic, is a fallacious argument that concludes a proposition to be true because many or all people believe it; it alleges that "If many believe so, it is so." The criticism is stated, and then the second sentence characterizes the criticism as a minority view, which engages in the fallacy just listed. This is the "criticism" section, not the "criticism of the criticism" section. The language is also biased. If the criticism of the criticism should stand in this section, the cliche "outside the mainstream", which has a negative connotation, should be re-worded to eliminate bias. I've looked through Wikipedia articles with "criticism" sections, and I cannot find a similar biasedly written criticism of a criticism. You certainly won't find it on the entries "Capitalism" or "Marxism". It should not be here. 76.105.195.53 ( talk) 01:54, 5 March 2009 (UTC) Also, the reference for the second sentence links to the opinion paper written by one assistant professor. This is an opinion paper, not a scientific study. The assistant professor even states his bias in his opinion paper:
Needless to say, I have many friends who think more highly of Austrian economics than I do.
One person's opinion does not an idea outside of the mainstream make. 76.105.195.53 ( talk) 02:01, 5 March 2009 (UTC)
If anyone could cast light on the orgin of the term 'Fiat money' that would be a great addition. Using the Google archive search, the term appears to have popped into existence in 1878. - Crosbiesmith ( talk) 18:25, 8 March 2009 (UTC)
About two thirds of this section is totally unreferenced. The remainder appears to be the unpublished theory of Michael Sproul. I will remove this material if sources are not available. - Crosbiesmith ( talk) 21:03, 9 March 2009 (UTC)
The section 'Fiat money and the concept of legal tender' makes no mention of fiat money. All the material in it concerns legal tender. There is no attempt to link the two concepts. I will delete this section in due course. - Crosbiesmith ( talk) 07:47, 21 March 2009 (UTC)
The result of the proposal was PAGE MOVED per discussion below. The history was broken, actually, from a cut-and-paste move from Fiat money to Fiat currency in December '05. The history is patched back together now. If there's anything I missed, please let me know. Oh... I suppose I should move this talk page, too. - GTBacchus( talk) 03:19, 27 March 2009 (UTC)
I have requested a page move from fiat currency to fiat money. 'Fiat money' is the more commonly used term. This title would also be consistent with the credit money and commodity money articles. - Crosbiesmith ( talk) 15:23, 21 March 2009 (UTC)
Thanks, GTBacchus. Nice job on the patch up and move. It's not perfect but it continues to improve. S B H arris 03:23, 27 March 2009 (UTC)
WP articles should not be so technical as to be unintelligible to the Average Reader, nor should they be subtly biased so as to support one school of thought over another school.
I think this article falls on its face in both respects. One is easier to see than the other, though. There is much detailed analysis about the history of various sorts of money (fiat money, credit money, specie money, tax backed money, ...), but the effect, as with so much economic writing is more fog than clarity. WP articles should be better written and more understandable than that. Even in a field as bestrewn with arcane experts and expertise, much of it mutually exclusionary. Someone who understand the field and its jargon and who can write clearly is badly needed.
ON the second point, there is a sense (to this reader at least) that the underlying approach of the article is discussion of a dodgy business, this fiat money. One which is fraught with problems and fraud. Regrettably, this leaves unsaid that currency manipulation is known to have predated by a long time the invention of fiat money by the Chinese (if it was they who did so -- the article is not clear on that point just now -- a poor writing issue). Currency debasement was an issue early on in Anatolia if some of the Greek sources I dimly remember can be trusted, and it was certainly so recurrently throughout the history that we have not lost. A better account then would start with the clear statement that no fully satisfactory practical method of managing currency (and so a money supply. Indeed there is no mention here of the concept of a money supply and the necessity of some rough parity between the size of an economy and the size of its money supply).
All methods tried to date have had considerable troubles in actual practice. Layered on top of this patchy and dodgy experience is a bramble patch of theoretical analysis schools, each declaiming with solemn authority (backed by abstruse and exhaustive (well certainly exhausting) analysis) which purports to show, from first principles in each case, that this or that way of managing currency is the only sensible one. Thet they are mutually exclusive in most respects, seems not to affect the importance accorded to the economists and analysts who intone solemnly and portentously. Practical operators, who are devoted to one or another school, predictably those which benefit their interests, have demonstrated that they are unable to operate sensibly in practical applications, much less theoretical analysis.
If both practical (however implicitly including some theoretical perspective) and formally theoretical approaches are dubious as ways of judging this or that approach to currency structure, this should be reflected in this article and its parallel articles. It is not. And all this is the other hurdle this article trips over and so fails to reach any sort of satisfactory finish line.
Not being in the field, nor a sufficiently extraordinary writer, I can't myself fix this. Some editor surely is in a postion to do so. Please, take a whack at it. I don't think it can be really a lot worse, so the downside risk is low.
Anyone? ww ( talk) 01:09, 25 March 2009 (UTC)
But please remember that fiat money is not the only money, even in societies that have it. Every time you write an IOU or originate a loan, you create a "money." If you buy and sell loans (see various kinds of "credit derivatives"), you're printing your own money. The colapse of modern financial systems is not due to misuse of fiat money, but due to misuse of other instruments as tradable "money" when their backing (AAA ratings, etc.) was far shakier than anything done by "fiat" via the federal reserve system. S B H arris 23:38, 28 March 2009 (UTC)
User:Ivanleo removed the following statement from the text - 'Federal Reserve Notes receive no backing by anything.' The statement was taken from the Treasury Department web-page FAQs: Currency - Legal Tender Status. I added this statement to the lead. The reason I did so was because this same page was used to support the statement 'In another sense however, they are "backed" by all the goods and services in the United States economy'. To use the source to support the second statement without mentioning the first would be to quote the source selectively. If this source is used, both statements need to be given. Furthermore, as the article stands, the words 'in another sense' make no sense in the absence of the first statement. As the first statement has been removed, I will also remove the second. - Crosbiesmith ( talk) 17:11, 14 April 2009 (UTC)
User:Monoecus added the following today:
In monetary economics, fiat money is an intrinsically useless good used as a means of payment and a storable object. Whereas cash-in-advance models of money [5] assume the usage of fiat money to trade goods, fiat money arises endogenously in many micro-founded models of money [6] [7] as it makes some trades feasible that would not be feasible without it (because agents cannot write IOUs due to anonymity or physical constraints for example).
This is not an easy passage to understand. Monoecus, or others, would it possible to elaborate on the meaning of the following terms please?:
I understand that endogenously means 'within', more or less, but I don't understand what it is that fiat money is endogenous to here. Thanks - Crosbiesmith ( talk) 18:32, 17 April 2009 (UTC)
Hi guy's. Just discovered the Discussion here. Let me elaborate a bit. Fiat money is a very important concept in monetary theory, i.e. the economic theory of explaining why money (especially fiat money) exist. Fiat money in this sense is important to be fiat as it stands in contrast to capital for example which has a certain consumption/production value. Hence, this was a first paragraph to put in. There should be of course much more about it. I honestly disagree with some of the comments above that this is a topic to be left out of wikipedia. Monetary theory is a very big and important field and fiat money takes a big stake here. So, this belongs definitely into this article. I will try to make up some more interesting references. As there are certainly more than thousand research articles using the term fiat money, that is a big big thing which was completely missing in the previous article. So, watch out for more. If you have questions, I will come back to this discussion. Cheers. Monoecus —Preceding unsigned comment added by Monoecus ( talk • contribs) 05:12, 21 April 2009 (UTC)
Regarding the endogeneity, that is a very important point to be mentioned. Fiat money in certain models are imposed by assumption (i.e. cash in advance models) or arise because agents want (!) to use money to maximize their utility. I will elaborate on this better, as soon as I have time. —Preceding unsigned comment added by Monoecus ( talk • contribs) 05:15, 21 April 2009 (UTC)
User:Sbharris - in the section 'Value when a fiat money loses backing' you have added the source Economic Policy and Prospects in Iraq. This article does not mention fiat money. It does not discuss backing by private banks or acceptance by individuals. It does not support the claims made in the section. - Crosbiesmith ( talk) 20:26, 17 April 2009 (UTC)
I have questions about, "Alan Greenspan, Federal Reserve Chairman from 1987 to 2006, was an early critic of fiat money arguing in his essay, Gold and Economic Freedom, that . . ." Since fiat money has been around and controversial for a long time, how could he have been an early critic? Was this wording meant to convey "early in his career. . ." or something else? Also, isn't a comma needed before "arguing," or am I reading the sentence wrong? 68.83.72.162 ( talk) 18:45, 26 September 2009 (UTC)
This section claims that a 'strong private banking system and consensus of the population' may support the value of a fiat currency. This appears to be original research. Unless a reliable source can be found for this claim I will remove it. I have checked the provided sources - they do not support this claim. They demonstrate that the Swiss Dinar continued in use despite its loss of backing by the original government. They do not explain why it continued in use. - Crosbiesmith ( talk) 20:04, 31 October 2009 (UTC)
Determining what the purchasing power of a fiat currency will be, seems an ill explored area in economics. The only theory I have come across in my research of this area is Ludvig Von Mises' Regression theorem [3]. I think that some mention should be made of this work and or rival theories (if they exist). Reissgo ( talk) 23:38, 8 November 2009 (UTC)
A user at 85.24.170.53 added the claim "It derives the value it has from the beliefs from the economic actors." This seems to be based on the blog post Gold - a six thousand year-old bubble, though this is not made explicit. A blog-post is not a suitable reference for such a claim. I have tagged it as unsourced. - Crosbiesmith ( talk) 19:08, 17 November 2009 (UTC)
Kbrose - you added the Expert-subject tag to the article, giving the reason 'too much controversy in talk page, and too few reliable sources'. Can you indicate a specific controversy which merits the tag, and a specific claim from the article which is not reliably sourced please? If no specific criticisms are made I will remove the tag. Thanks - Crosbiesmith ( talk) 19:06, 27 November 2009 (UTC)
Keynes defined fiat money as follows:
Fiat Money is Representative (or token) Money (i.e something the intrinsic value of the material substance of which is divorced from its monetary face value) - now generally made of paper except in the case of small denominations - which is created and issued by the State, but is not convertible by law into anything other than itself, and has no fixed value in terms of an objective standard.
(John Maynard Keynes (1965) [1930]. "1. The Classification of Money". A Treatise on Money. Vol. 1. Macmillan & Co Ltd. p. 7.)
I will add this to the article lead as an additional defintion. - Crosbiesmith ( talk) 17:00, 28 December 2009 (UTC)
The current article states "Fiat currency was anathema to American president Andrew Jackson. Jackson went so far as to pass the Specie Circular in 1836, which required all payment for government lands to be in gold or silver coin." This is unsourced. I doubt there is a source as fiat money was not at that time in use in the U.S. The Specie Circular was intended to combat the use of bank-issued credit money, not fiat money. I will remove these claims shortly. - Crosbiesmith ( talk) 13:12, 30 December 2009 (UTC)
Also, the Mises criticism appears to be directed at a money-supply led credit expansion, not specifically at fiat money. I will remove this also. - Crosbiesmith ( talk) 13:20, 30 December 2009 (UTC)
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