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Is fiat currency not another case of "the worst solution except for all the other ones we've tried?" Gold-backed reserve notes and even coins made of the metal

Is fiat currency not another case of "the worst solution except for all the other ones we've tried?" Gold-backed reserve notes and even coins made of the metal(s) can still be debased (see https://en.wikipedia.org/wiki/Roman_currency#Debasement https://en.wikipedia.org/wiki/Roman_currency#Debasement). And as noted, transacting in ingots of the precious metals isn't practical. Also heavy and hard to securely store and transport. Trying to transact in and hold a commodity is also problematic because these metals have other uses. What if you hold a bunch of gold and then we find a better non-tarnishing conductor and switch to it, and the price plummets? What if you lent platinum to a friend and suddenly we find a room-temperature superconductor that needs platinum, and the value of that platinum is now 10x'd? Or you lent platinum to a friend and before they could spend it, its value plummets for industry reasons and now they can't even do the thing that was presumably going to allow them to eventually repay you? "Our fiat currency is valuable because, and exclusively because, our government pays its debts, has excellent regulation and enforcement, a well-understood legal system, 99% of the world's aircraft carriers, and a large stockpile of nuclear weapons" seems like a pretty decent option compared to all the others? And the Fed doing monetary policy things isn't exclusively negative. They seem to have kept us from going into a recession or having runaway inflation just this year and the three years prior. So that could've been a lot worse, I think.

carlosjobim 3y ago
> What if you hold a bunch of gold and then we find a better non-tarnishing conductor and switch to it, and the price plummets? With metals you can only question "What if?", with fiat currency the only question is "When?", because all fiat currencies in history have collapsed and become worthless.
- dragonwriter 3y ago
  > all fiat currencies in history have collapsed and become worthless. No, they haven't.
  - johngladtj 3y ago
    Name one fiat currency that over a period of 100 years has not lost 99% of its value (or around that percentage)
    - dragonwriter 3y ago
      First, I don't accept “99% decline over 100 years” as collapse of a currency. Second, even if I did, the US Dollar retains 5.6× the value this standard would set. (Of course, it wasn’t purely a fiat currency over that whole time period, but then, setting a standard for collapse/no-collapse time window longer than pure fiat currencies have been a norm and then demanding counterexamples that have existed and not collapsed in that time is kind of sketchy, independently of whether you have a sane definition of collapse.)
dragonwriter 3y ago
> What if you hold a bunch of gold and then we find a better non-tarnishing conductor and switch to it, and the price plummets? Or, for an example that actually happened with gold and silver, we find a previously unknown (to the society using it as currency) plentiful and cheap supply of the same metal?
deltarholamda 3y ago
>Gold-backed reserve notes and even coins made of the metal(s) can still be debased Well, yes, but it's harder to play games with, which makes it more stable. It's similar to making the argument that while Windows is less secure than Linux, Linux also has security issues, so we should just have everybody use Windows. We have ample evidence that the caretakers of our money supply are, shall we say, less than diligent. No currency system is going to be perfect. You have to balance a lot of things, and every single one is subject to corruption and other sorts of chicanery. There is always a "what-if" scenario.
- dragonwriter 3y ago
  > Well, yes, but it's harder to play games with, which makes it more stable. Gold might be better at average value performance over time than fiat currencies which are actively managed for stability and a bias toward slight value decline, but its very definitely not more stable than major fiat currencies.
  - tmn 3y ago
    Over enough time it is more stable than all fiat currencies. But most people don't care to consider that time scale.
    - dragonwriter 3y ago
      If you mean “the wide range in which the extremely unstable value of gold varies doesn't move very much over time, so that the value it had a 300 years ago today is likely to be repeated sometime within a 100 year window centered on today, whereas fiat currencies have a more consistent downward value trend”, that’s true, but its not value stability, or a good thing in a currency. Its not a particularly great thing in an investment asset either.
  - deltarholamda 3y ago
    That's an odd assertion to make, considering the current condition of fiat currencies. Gold is more or less untethered to anything right now, other than what people think it's worth as a hedge. There is an intrinsic value in industrial applications, but that's an edge case. So you are basically valuing gold based on what you can get for it in fiat currencies, which is like using a yardstick to measure itself. Inflation after closing the gold window in the 70s has been staggering. If you have to cough up something--gold, silver, goats, something--for your currency, you can't play the sorts of games we do now with dollars.
AnthonyMouse 3y ago
There are some fairly obvious solutions to this. For example, suppose you had bearer securities representing shares in an investment portfolio. It wouldn't have wild price changes any more than the underlying security, which could be a highly diversified index fund or a real estate trust or whatever you like. The bearer token has a secret in it, which you can change over the internet if you have the existing one, so if the token changes hands you can swap the secret out and be assured the previous owner hasn't kept a copy of it. Which would also allow you to transfer them over the internet. That would make for great "cash" but not if trading in them requires you to be a securities broker or file a tax form each and every time you want to buy a pack of gum.

carlosjobim 3y ago

> What if you hold a bunch of gold and then we find a better non-tarnishing conductor and switch to it, and the price plummets? With metals you can only question "What if?", with fiat currency the only question is "When?", because all fiat currencies in history have collapsed and become worthless.

dragonwriter 3y ago
> all fiat currencies in history have collapsed and become worthless. No, they haven't.
- johngladtj 3y ago
  Name one fiat currency that over a period of 100 years has not lost 99% of its value (or around that percentage)
  - dragonwriter 3y ago
    First, I don't accept “99% decline over 100 years” as collapse of a currency. Second, even if I did, the US Dollar retains 5.6× the value this standard would set. (Of course, it wasn’t purely a fiat currency over that whole time period, but then, setting a standard for collapse/no-collapse time window longer than pure fiat currencies have been a norm and then demanding counterexamples that have existed and not collapsed in that time is kind of sketchy, independently of whether you have a sane definition of collapse.)

dragonwriter 3y ago

> What if you hold a bunch of gold and then we find a better non-tarnishing conductor and switch to it, and the price plummets? Or, for an example that actually happened with gold and silver, we find a previously unknown (to the society using it as currency) plentiful and cheap supply of the same metal?

deltarholamda 3y ago

>Gold-backed reserve notes and even coins made of the metal(s) can still be debased Well, yes, but it's harder to play games with, which makes it more stable. It's similar to making the argument that while Windows is less secure than Linux, Linux also has security issues, so we should just have everybody use Windows. We have ample evidence that the caretakers of our money supply are, shall we say, less than diligent. No currency system is going to be perfect. You have to balance a lot of things, and every single one is subject to corruption and other sorts of chicanery. There is always a "what-if" scenario.

dragonwriter 3y ago
> Well, yes, but it's harder to play games with, which makes it more stable. Gold might be better at average value performance over time than fiat currencies which are actively managed for stability and a bias toward slight value decline, but its very definitely not more stable than major fiat currencies.
- tmn 3y ago
  Over enough time it is more stable than all fiat currencies. But most people don't care to consider that time scale.
  - dragonwriter 3y ago
    If you mean “the wide range in which the extremely unstable value of gold varies doesn't move very much over time, so that the value it had a 300 years ago today is likely to be repeated sometime within a 100 year window centered on today, whereas fiat currencies have a more consistent downward value trend”, that’s true, but its not value stability, or a good thing in a currency. Its not a particularly great thing in an investment asset either.
- deltarholamda 3y ago
  That's an odd assertion to make, considering the current condition of fiat currencies. Gold is more or less untethered to anything right now, other than what people think it's worth as a hedge. There is an intrinsic value in industrial applications, but that's an edge case. So you are basically valuing gold based on what you can get for it in fiat currencies, which is like using a yardstick to measure itself. Inflation after closing the gold window in the 70s has been staggering. If you have to cough up something--gold, silver, goats, something--for your currency, you can't play the sorts of games we do now with dollars.

AnthonyMouse 3y ago

There are some fairly obvious solutions to this. For example, suppose you had bearer securities representing shares in an investment portfolio. It wouldn't have wild price changes any more than the underlying security, which could be a highly diversified index fund or a real estate trust or whatever you like. The bearer token has a secret in it, which you can change over the internet if you have the existing one, so if the token changes hands you can swap the secret out and be assured the previous owner hasn't kept a copy of it. Which would also allow you to transfer them over the internet. That would make for great "cash" but not if trading in them requires you to be a securities broker or file a tax form each and every time you want to buy a pack of gum.