4 ms·

That sound very smart but I don't follow the logic. FIAT money is popular because it is popular, and because there is an entity, the central bank, which works

• deleted 3y ago
  [deleted]
• carlosjobim 3y ago
  The logic is that fiat money continually loses value due to inflation, which means that most people want to avoid it if they had the option. The stability that the central bank guarantees is that the currency will continue decrease in value, until it becomes exponential and out of control. Then a currency reform is conducted. The central banks do not try to hide that their goal is inflation, although they aren't very honest about the rate of inflation. I'd say there would be no demand at all for government fiat currency, unless they forced people to use it. In ancient Rome the emperor just diluted the silver coins with other metals and tried to force people to accept it at face value. Then in much of history there was no fiat money to speak of, rulers demanded their tributes in gold or hard goods. But if you demand tributes (taxes) in a currency that only you emit, there will be a demand on that currency. In the real world, we see this in many countries in the world, where as the government does not tightly control the population and their tax payments, they are not able to protect the value of their currency, and their people will use foreign fiat currency as much as they can.