Paper currency/coins backed by nothing but a “promise” and legal status. Except for that there is no value associated with Fiat currency. As a means of exchange, that is all that you need to buy a product/service in exchange for that paper. The buyer accepts it because he/she can go and buy something else for himself or family etc.
Why is paper currency used?
Because there is mostly no other alternative that most of the countries and banks around the world offer. They print this money into circulation. If people feel their money can actually be exchanged for goods or services, they won’t reject it.
What is the problem then (if can be exchanged)?
The problem with fiat money is with that:
– There is no real value associated with it.
– The currency you have saved erodes itself out of value overtime with inflation.
– The only things that backs these papers is the government’s decision to call them legal. Nothing more.
If you have not watched the FIAT currency videos earlier, watch this one. It is the Truth of Paper Currency – Fiat ….
These 15 minutes might be the most shocking 15 minutes of your entire financial knowledge.