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Technically a FRN (Federal Reserve Note) is backed by a US Dollar. These are distinctions which seem odd today, and describe the odd system that we now have. A
by _red 9y ago
Technically a FRN (Federal Reserve Note) is backed by a US Dollar. These are distinctions which seem odd today, and describe the odd system that we now have.
A "US Dollar" is defined constitutionally as being "gold or silver". However you can no longer redeem a FRN for a USD....only for more FRN's.
It raises several interesting legal questions when pondered, for instance when you pay taxes you are being taxed on USD earnings, although technically you've never been paid this.
- pmyteh 9y agoThere's no constitutional definition of a dollar: gold, silver or otherwise. The restrictions in article I section 10 bind the states, not the federal government. Since the suspension of convertibility into gold in the 70s, dollars are essentially a pure fiat currency - whether in FRNs, dollar coins or otherwise.
- _red 9y agoYes it bound the states...and its obvious intention was to forbid the promulgation of fiat throughout these "united states". Moreover, the First National Bank of the US was forbidden from both buying US treasuries and issuing debts beyond its capitalization. Clearly two limitations intended by the framers of the constitution to prevent the issuance of a fiat currency. The dollar was a unit of measure prior to the existence of the United States. Saying the dollar was not defined is like saying an ounce is not defined. A "dollar" was 550 grains in weight.
- pmyteh 9y agoIts obvious intention was to centralise currency by preventing the states from making their own scrip. The Framers were perfectly capable of writing limitations on the federal government reflecting those on the states if they wanted to - look at the restrictions on bills of attainder and titles of nobility. And the first Bank was not set up by the Constitution - it was set up in 1791 by Act of Congress after a political fight between Hamilton and his critics. The Spanish dollar existed at the time of the US's founding, as did various other countries' (differently weighted) dollars; the US dollar wasn't defined until 1792 (when it was, indeed, defined as given weights of either gold or silver - the Spanish dollar was silver only). But the US dollar was defined by Congress and can be redefined by the same. And they have.
- betenoire 9y agoSo something I've never understood, or had explained to me well, perhaps, is ... the value of gold is not proportional to it's actual utility, so its value also seems equally arbitrary. So what is the issue people have with "fiat" currency? Is it simply because it is created and managed by the government?
- _red 9y agoBecause you can't print gold. The fundamental question is: Should we represent the value of real finite things (carrots, oil, land, etc) using an abstraction which is also finite or one that is infinite? Exponential growth curves can't continue forever. This is the fundamental reason why all fiat currencies eventually fail.
- betenoire 9y agoYou can't print gold? Are you saying you can't counterfeit "finite things"? Is that the main benefit here?
- _red 9y agoYou could potentially print gold via nuclear fusion / fission reactors. However the cost would be several orders of magnitude higher than few grams of gold produced. All successful forms of money share the following characteristics: counterfeit resistant, rare, fungible, easily transportable, little to no carrying cost, and high value per unit (another way to say rare). Its no accident that human society settled upon gold as representation of this ideal since it closely fits all these criteria. Its possible that crypto will change this however...
- betenoire 9y agoI think you worded your way around my question. You can fake people out without a nuclear reactor. And it looks like we settled on USD (or other workarounds to gold, for ages now), not gold.