Fiat Money Vs Commodity Money-A Raging Debate

Are you looking to become involved in the discussion surrounding fiat money vs. commodity money? Many people are trying to learn more about this discussion as countries around the world are running up debt. America is not exempt from this either as seen by the trillions currently owed by the United States government. Commodity money is currency backed by a tangible object. Up until the mid-20th century, the American dollar was backed by gold. At that time, the switch to fiat money was adopted. Fiat money has no intrinsic value per se, but the government has declared it to be money. The dollar bill is a good example of this.

The dollar bill itself has no value unless the United States government declares it does. It is nothing more than a piece of paper with writing on it. On this bill you will see the words “legal tender for all debts, public and private.” This tells you that when you accept this currency the government accepts that you have legally been paid. The money itself is only as good as the government which is backing it. Although confederate money may have similar phrasing, it no longer has a government to back it. Whether or not money should be backed by a tangible item is at the center of the fiat money vs. commodity money debate.

What many do not realize when engaging in the fiat money vs. commodity money debate is that all national currencies are considered to be fiat currencies as they are not backed by anything other than the word of the issuing government. This includes the euro, the United States dollar and all reserve throughout the world. The shift to fiat currency first began in 1971 with the Nixon shock. This is when the decision was made to no longer back the United States dollar with precious metal.

The problem occurs when money is printed and there is nothing to back it. This is one reason why the fiat money vs. commodity money debate is so hot right now. Many feel the Federal Reserve System of the United States should not have the ability to increases money production to meet debts. This can lead to inflation or hyper inflation. Many believe the only solution at this time is to return to commodity money. Unfortunately, another group does not want this to happen. Only time will tell how this debate will be settled, but it may be a tough fight until then.

Christopher Benoit



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