3 ms·

What do you believe fiat currencies are backed by?

TACIXAT 9y ago
Taxes, primarily. Everyone needs to pay taxes and they need to pay taxes in their national currency (see: Modern Monetary Theory). This makes everyone seek out their national currency. Additionally, countries have a very different goal when creating money than miners do. Miners are profit driven and countries are interested in continuity and stability. You could also consider the GDP of a country as a backing for its currency, this demonstrates the currency is being used and the backing entity will remain solvent. The only thing cryptocurrencies are used for is speculation and buying drugs online, in all other cases they simply act as a pass-through for transactions in fiat.
- colorint 9y ago
  The "solvency" of a government (that issues its own currency and only issues debt in that currency) is the same thing as its credibility. Or to tie it to what you said, a government is exactly as solvent as its ability to collect taxes.
- sbenitoj 9y ago
  Well, its certainly a common belief that the requirement to pay taxes in the national currency gives a national currency its value, but the hyperinflationary events in Zimbabwe and the Weimar Republic (and the subsequent worthlessness of those national currencies) demonstrate that this requirement is insufficient to give currencies their value. In fact, the only thing that gives currencies their value is people's belief that they have value (much like gold before national currencies). I'd also like to add that "countries" dont have goals, countries are made up of people, and only people have goals -- and all people are self-interested. The people in control of monetary policy are just as self-interested as the miners are, instead of receiving profit directly like the miners they inflate currencies to the benefit of major banks in their countries (and subsequently get highly paid jobs at those banks or elsewhere in the finance industry).

Taxes, primarily. Everyone needs to pay taxes and they need to pay taxes in their national currency (see: Modern Monetary Theory). This makes everyone seek out their national currency. Additionally, countries have a very different goal when creating money than miners do. Miners are profit driven and countries are interested in continuity and stability. You could also consider the GDP of a country as a backing for its currency, this demonstrates the currency is being used and the backing entity will remain solvent. The only thing cryptocurrencies are used for is speculation and buying drugs online, in all other cases they simply act as a pass-through for transactions in fiat.

colorint 9y ago
The "solvency" of a government (that issues its own currency and only issues debt in that currency) is the same thing as its credibility. Or to tie it to what you said, a government is exactly as solvent as its ability to collect taxes.
sbenitoj 9y ago
Well, its certainly a common belief that the requirement to pay taxes in the national currency gives a national currency its value, but the hyperinflationary events in Zimbabwe and the Weimar Republic (and the subsequent worthlessness of those national currencies) demonstrate that this requirement is insufficient to give currencies their value. In fact, the only thing that gives currencies their value is people's belief that they have value (much like gold before national currencies). I'd also like to add that "countries" dont have goals, countries are made up of people, and only people have goals -- and all people are self-interested. The people in control of monetary policy are just as self-interested as the miners are, instead of receiving profit directly like the miners they inflate currencies to the benefit of major banks in their countries (and subsequently get highly paid jobs at those banks or elsewhere in the finance industry).