What is happening to fiat money?
Fiat money is the foundation of the global economy, but its role is rapidly changing. Today, it is losing its connection to the real economy, raising global questions about the future sustainability of the financial system.
Problems of Fiat Money
Fiat currencies are created by governments, and their value is supported by trust and the economy. However, serious deficiencies are being revealed in the modern system:
1. Unlimited Issuance:
Central banks issue money in large volumes to stimulate the economy and cover debts. This leads to inflation and a decrease in purchasing power.
2. Subjective Value:
Fiat money is no longer tied to real assets. Its value depends entirely on trust, which can be undermined in times of economic crises.
Inflation: a Tool and a Problem
Inflation decreases the purchasing power of money, eroding its real value. For many governments, this has become a convenient way to manage debts.
Example:
With an inflation rate of 10% annually, a debt that seems enormous today becomes virtually negligible in 10 years.
But this approach undermines trust in money and increases the instability of the global economy.
Financial Bubbles
An excessive amount of fiat money provokes the creation of financial bubbles, where asset and commodity prices do not correspond to their real value.
1. Inflation of Value:
Prices in the markets are rising, but this does not reflect real economic processes.
2. Detachment from the Real Economy:
Fiat money no longer performs its key function — to be a measure of real value.
What does this mean for the world?
Fiat money, once a symbol of stability, is becoming a source of global problems. Its excessive quantity, loss of connection to the economy, and inflationary risks threaten the global financial system.
These changes require a reassessment of the role of money and the search for alternatives that can restore its original meaning.