Hey Guys we the team of HELPING SURFERS INC. has come up new topic Fiat Money. Most of the people have a confusion about Fiat and Cryptocurrency. In this part we are going to share information about these Fiat money and is advantages and disadvantages. So Lets Begin.
Advantages and Disadvantages of Fiat Money
Advantages of Fiat Money
Fiat Money has remained legal tender in most countries in part because they are highly stable and controlled. Unlike other forms of money, such as cryptocurrencies and commodity-based currencies, fiat currencies are relatively stable. The stability allows regulators and governments to navigate the economy against recession and inflation. Stability also allows fiat money to act as a means of storing value and facilitating exchange. It can also be used to provide a numerical account. Greater control also allows central banks to manage various economic variables such as liquidity, interest rates and credit supply key to ensuring a robust, stable economy.
Disadvantages of Fiat Money
Though Fiat Money is considered a stable currency, yet that is not always the case. Economic recessions over the years have highlighted some of the deficiencies associated with Fiat money. The fact that a central bank’s greater control at times does little to stop inflation or recession has led most people to believe that gold could be a much stable currency given its unlimited supply. The notion of central banks control over the economy and the constant increase in global prices create the need for cryptocurrencies.
What determines the value of fiat money?
The value of the currency is based on what it can be used for, not because the coins or cash have any particular value. It’s money that can be used because it’s based on a trust relationship between the issuer, the holder and those that receive it — in turn the supply and demand can be loosely regulated by the government and market.
If trust in the value of a currency is lost, it will lose demand which will lead to a drop in value. The trust of currency is ultimately based on members of the economy believing it’s worth something. The value of fiat money isn’t directly held in a physical asset like a precious metal or an item that’s of use to someone.
For example, when the government of Zimbabwe started issuing more money, the situation eventually snowballed into one where no-one trusted the value of the currency — so, it collapsed as a form of fiat currency.
What can fiat money be used for?
Fiat money is widely accepted all over the world to buy almost any good or service. Fiat currency can come in the form of paper money, coins, credit, loans or bonds. If you apply for a credit card or personal loan and are approved, that credit or amount of money you receive is a form of fiat money because you’re essentially using money on the basis of your creditworthiness and agreement that you’ll pay back the funds — typically with interest.
Fiat money can also be useful for exchanging currency when you’re going on vacation, traveling or sending money around the world. International money transfer services allow people all over the world to take one form of fiat money and send it in the form of a different type of fiat currency for a small fee.
For more related information we are going to share part 2 of Fiat Money.
