5 Main Reasons Fiat Currencies Are Failing Economic Systems

When money is considered, fundamentally it denotes two different ideas of the “value”. One idea denotes that money has value because we believe that it has value. To put it simply, money is nothing but a piece of paper authorized by the government and we consider it as a standard reference of value. 

On the other hand, it can be considered objectively as other resources such as clothes, or any types of equipment are created using resources. According to the first idea, the value can be altered or modified by the authorizing body. In this article, we will be sharing the 5 main reasons that fiat currencies are failing economic systems. 

Fiat Money is an Abstract Concept

Have you watched the popular movie ‘Matrix’? If you haven’t watched that movie, then you should watch the movie, you will find it interesting. There is a child in conversation with the protagonist ‘NEO’ about bending a spoon with the mind. In that scene, you can clearly understand what is an abstract concept. 

Let us explain a little bit about the scene. The child was gifted with some extra power and he asked NEO to bend the spoon with the mind. When NEO wondered, how can you bend it with your mind, he replied, “it is not the spoon that bends, it is yourself”. Now here it is a classic example of an abstract concept where words are used to imagine with the mind. 

Similarly, money is an abstract concept in which we create a mental image in our mind for the exchange of goods and services. Considering fiat currencies as abstraction is illogical because money is nothing but some electronic digits.

Regulated by Central Authority

Another main reason that fiat currencies are failing is due to the central authority. The problem with the central authority is that it has the power to reject any other form of value system. This shows that it is a classic example of a monopoly and not a democratic financial system. Due to which the economy is facing unprecedented issues and consequences. This can be reduced by the adoption of a democratic financial system. 

To address this issue, Satoshi Nakamoto developed a financial model and the first digital currency named Bitcoin. This eliminates the problem of central planning. Gradually, thousands of cryptocurrencies are developed in the last couple of years to bring a liberal financial system to the world. You can read here tips to start a new business.

Inflation

Fiat currencies can be devalued by the government. To stabilize economic volatility, the government may devalue the value of money by printing a greater number of currencies. As the government has the power to issue money to the public, it can print as many notes as possible which is a devaluation of the value system. 

It shows that fiat currencies can be devalued by the government during uncertainties. This happens generally due to the economic downturn, financial crisis, or war situations. In these situations, the government tries to stabilize the economy by printing a large number of notes which results in inflation. 

Settlement of Transactions

Transaction in fiat currencies is unstable and ineffective. To understand this let’s take a simple example. If you want to buy something from a foreign country then for buying that goods or services you need to pay the extra charge as an exchange fee. As the fiat currencies have a different value in different countries, so exchanging the money can be costlier.  

The money will be transferred to the recipient in various mediums such as banks, exchanges, financial institutions. This also takes a lot of time and there is a possibility of failure of transactions. 

Lack of Transparency

Fiat currency policies and legislation are not transparent to citizens. Any policy change introduced to the monetary system can be governed by the government without the knowledge of the people. So there is a lack of transparency since people can not know the reason behind any shift in policy or interest.

Conclusion

All of the above reasons show that fiat currencies are failing economic systems. To create a better economic system the government of all countries should come together to bring a solution for a global financial system. Please share your opinion on this post on fiat currencies.