What is fiat currency



19 października 2021
What is fiat currency

Due to the recent economic situation, issues related to monetary policy more often turned out to be an element of debates and talks. Anyone who was interested in investing, finance or banking has considered issues such as the interest rate, the required reserve rate or the money supply. However, the basis for correctly understanding these terms is to understand what fiat is and how it works.

Fiat currency - what is it?

In a nutshell, fiat is money that is not backed by material goods. This means that money has no value in itself and is useless without the existence of an issuer. In other words, it is a currency whose value is based on public belief in the issuer (s). Hence, in the literature on the subject, fiat currency is fiat money (from Latin fides - faith). The term "fiat" means "let it be" and is used to mean an order, law or order of a state. Belief in the issuer, i.e. the state, manifests itself both as a compulsion (e.g. paying taxes in fiat) and an internal interest in the currency's scarcity (not issuing more than is due).

How was it before?

The functional opposite of fiat money is commodity money. I paid for gold coins, shells and nuggets of ore. In the twentieth century, representative money became more common. These were, among others gold and silver certificates or currencies that represented a claim to the commodity. Until the 1970s, in the United States, every dollar could be exchanged for gold. It was the same in Poland right after the war as part of the Golden Block of 1933.

A system in which the currency had a value beyond belief has proved to be completely unsuited to the challenges of globalization. The supply of money, i.e. the amount of money in circulation, was often volatile and not adapted to economic conditions. This was associated with large fluctuations in price increases. Periods of permanent deflation were common, which some believe is more dangerous than uncontrolled inflation. Deflation causes consumption to be put off in anticipation of a lower price. Fiat money helped to solve this problem.

What fiat is, makes alternatives necessary

Knowing that fiat currencies come with dangers, we should be prepared for both its real value decline and complete invalidation. Therefore, you should consider investing some of your savings in assets other than cash or deposits. Cryptocurrencies turn out to be a good solution. Although their structure is similar to the essence of what a fiat currency is, i.e. only an implied value, cryptocurrencies should rather be compared to gold. It also has its value not through usefulness, but through faith in its rarity and cultural conditioning. However, cryptocurrencies, unlike fiat, are in a limited amount (often determined at the beginning of issue). This means that the value cannot fall as a result of an increase in supply.

If the construction of fiat currencies made you decide to buy bitcoin, you should be sure that they are stored in a dedicated account. Our solution ensures that it will be impossible to transfer bitcoin to others. The collected funds are stored under the so-called cold wallets (i.e. not connected to the Internet). This means your investments will be very safe. In addition, the ability to sell quickly means that we can withdraw funds whenever you need them.

Attention! The above article neither in whole nor in part constitutes a "recommendation" within the meaning of the provisions of the Act of July 29, 2005 on trading in financial instruments or the Regulation of the European Parliament and of the Council (EU) No. 596/2014 of April 16, 2014 on market abuse (market abuse regulation) and repealing Directive 2003/6 / EC of the European Parliament and of the Council and Commission Directives 2003/124 / EC, 2003/125 / EC and 2004/72 / EC and Commission Delegated Regulations (EU) 2017/565 of 25 April 2016 supplementing Directive 2014/65 / EU of the European Parliament and of the Council as regards organizational requirements and operating conditions for investment firms and defined terms for the purposes of this directive. The content contained on the website does not meet the requirements for recommendations within the meaning of the above-mentioned act, incl. do not contain a specific valuation of any financial instrument, do not rely on any valuation method, and do not identify investment risk.

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