4 ms·

Fiat currency was originally intended to be the promise to pay the bearer the stated amount in precious metal. Today it is "backed" by bonds, as you put it. Now

Fiat currency was originally intended to be the promise to pay the bearer the stated amount in precious metal. Today it is "backed" by bonds, as you put it. Now what is a government bond? It is an IOU from the government promising to pay back the stated amount of fiat currency plus interest. So the currency created out of thin air is backed by IOUs denominated in the very same currency they're supposedly backing. That's my favorite take in the entire thread.

randbox 5y ago
In America during the late 1600s through early 1700s fiat currency was placed into circulation as the loan or mortgage held by the governor secured by the property of the borrower. There was no promise, advertisement, or intention to pay in metal. In a public land loan office system, the value of the currency is backed by the value of the property which the borrower does not wish to lose if they fail to collect back currency in the same unit of account after spending and investing to avoid default or foreclosure. The promise which governors and colonial assemblies made to the borrowers was primarily that the government would continuously spend the revenues brought in by interest payments back into circulation on local infrastructure, and that new loans would be regularly issues at low interest rates of 3-4%, so that the money needed by borrowers to repay their debts was easy to come by, and that the debt would not be held or sold to private lenders engaged in usury. So accepting the scheme was a good deal to borrowers, and provided immigrant farmers with cash & credit which would not otherwise be available to them without borrowing form European lenders at high rates. The government acted as a public bank and the money was a public utility.
- trompetenaccoun 5y ago
  Fiat currency wasn't invented in the US but most likely in China hundreds of years before the dates you cite (and let to hyperinflation almost right away).

randbox 5y ago

In America during the late 1600s through early 1700s fiat currency was placed into circulation as the loan or mortgage held by the governor secured by the property of the borrower. There was no promise, advertisement, or intention to pay in metal. In a public land loan office system, the value of the currency is backed by the value of the property which the borrower does not wish to lose if they fail to collect back currency in the same unit of account after spending and investing to avoid default or foreclosure. The promise which governors and colonial assemblies made to the borrowers was primarily that the government would continuously spend the revenues brought in by interest payments back into circulation on local infrastructure, and that new loans would be regularly issues at low interest rates of 3-4%, so that the money needed by borrowers to repay their debts was easy to come by, and that the debt would not be held or sold to private lenders engaged in usury. So accepting the scheme was a good deal to borrowers, and provided immigrant farmers with cash & credit which would not otherwise be available to them without borrowing form European lenders at high rates. The government acted as a public bank and the money was a public utility.

trompetenaccoun 5y ago
Fiat currency wasn't invented in the US but most likely in China hundreds of years before the dates you cite (and let to hyperinflation almost right away).