Disadvantages of Fiat Currency

6355318323_4c41d3ef76_bFiat currency, as explained at the end of my previous post, is a currency, usually always paper based, and isn’t backed by any commodity. Here are three major disadvantages to using a fiat currency.

  1. The unlimited ability of governments to “print” up money whenever they want. This gives the government the ability to steal resources from the people even when they refuse to be taxed. They just inflate the currency slightly and buy what they want before the prices go up.
  2. Fiat currencies will always lose value over time. Every year, a bunch of new money is printed in order to replace all the bills that have been taken out of circulation due to the bills having been destroyed or lost, but they usually will print more than what is actually needed, and thus the available currency constantly expands. Also, as was mentioned before, how can greedy, fallible human beings resist printing up wealth and dropping it on their laps?
  3. Fiat money always has the potential to drop to zero value. Since the paper has no value in itself, the paper can and inevitably will lose all value. This means that if you save up money for retirement, the purchasing power of that many will have decreased significantly by the time your retire, forcing you to invest, even if you have little or no experience in the field. Once the currency drops to little or zero value, the economy, and everyone in it, will be completely ruined.

Even though there are disadvantages to even a commodity based currency, such a currency would not have such rampant problems as a fiat currency, and you wouldn’t be giving unlimited power to a select few. And, instead of losing purchasing power, gold and silver usually always gain that said purchasing power. Why not take advantage of that?

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