Our current economic system can be compared to a merry-go-round that has us consuming, trapped in debt and spending as quickly as we earn. What is fiat currency? Why do we use it and who controls it? And how does it compare to gold and bitcoin? It is worth going back to basics, to better understand the fundamentals of what makes money money.
The first ever currency is credited to King Alyattes in Lydia in 600BC, and the first coin ever minted features a roaring lion, according to the Greek historian Herodotus. Fast forward to the 21st century, and fiat money is now paper money and coins are not convertible into gold or silver but are made legal tender by fiat (order) of the government. Fiat currency is used for trade, to facilitate the direct exchange of goods and services. Without money we cannot easily acquire basic necessities such as accommodation, food and clothing.
The value of a nation’s currency is strongly tied to the value of its imports and exports. So any country that exports gold or has access to gold reserves will also see an increase in the strength of its currency when gold prices rise since this increases the value of the country’s total exports.
A new medium of exchange in the form of cryptocurrencies arrived when Satoshi Nakamoto launched Bitcoin in 2009. Unlike government issued currencies, Bitcoin has no central party responsible for controlling it.
The International Monetary Fund (IMF) is an organization that monitors global economic and financial developments.