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I use cash all the time. But then, I'm old so.... But, this statement: "Fiat currency, on the other hand, holds value just because a governing entity is endors
by bwanab 3y ago
I use cash all the time. But then, I'm old so....
But, this statement: "Fiat currency, on the other hand, holds value just because a governing entity is endorsing it" just isn't true. I see it bandied about a lot by people who have a certain way of thinking. Consider modern "fiat" currencies of reasonably advance countries. What do they all have in common? Debt. Now, you may think that just makes the argument right there that they really are fiat, but what does that debt represent? It represents the endorsement of the currency by all the individuals and entities that hold that debt. Any government that doesn't want their fiat currency to collapse has to behave in a way that ensures those creditors that their confidence is well placed.
- sowbug 3y agoYou are describing network effects. People use Facebook because people use Facebook, as one example. Network effects are part of the reason why a company like Facebook is valued higher than the net of its assets minus liabilities. In accounting, the value of network effects is called goodwill. (Goodwill is only part of the reason for the higher value; another is expected future growth, both of the network effects and of however the company generates profits.) Currencies like the dollar, yen, euro, etc., have value because people think they have value. Incidentally, the same network effects apply to digital currencies, as does the expectation of future growth. But for the most part, the future growth of digital or physical currencies is based on the growth of the network effects, because currencies themselves don't generate revenue for "shareholders."