Fiat money
Fiat money from the Latin word fiat ("Let it be done! Let it happen! Let there be!") (Also English Fiat money ) is an object with no intrinsic value that serves as a medium of exchange. The opposite of fiat money is commodity money , as z. B. tobacco , rice , gold or silver is used, which in addition to the external exchange value also has an intrinsic value that is independent of government decrees, as long as it can be used to pay. All of today's monetary systems do not fix the value of the currency at an official rate with a commodity. Instead, the value is secured through the government's power to make the currency legal tender . However, through a legal stipulation as a means of payment in a currency constitution alone, it does not necessarily acquire the properties of money , but only through the general acceptance of trading partners (payers, recipients), also with regard to the value and rate of the currency.
designation
The component fiat is derived from the Latin Passivverb or Semideponens fieri . This is the 3rd person singular present subjunctive active. The German translation reads: "He, she, it be, will, happen, arise, take place or occur". A well-known example of the use of the verb can be found in the biblical quote from the creation story “Fiat lux!”; in English: "Let there be light!" It is thus a creation ex nihilo .
content
The use of money depends on its usefulness or its use value. The usefulness consists in the fulfillment of the three money functions of exchange means, savings means and value measurement or arithmetic unit function, which is in each case linked to certain conditions. The function of medium of exchange is only fulfilled if money is generally recognized as a means of payment by economic agents . The savings function is only fulfilled if the loss of purchasing power (also in terms of external value ) remains low and there is trust (Latin credit - he, she, it believes) in the future use value as a medium of exchange (i.e. trust that the money will also be used in the future as a Medium of exchange is recognized). Confidence in long-term value stability and purchasing power are in turn dependent on trust in and expectations of the money-issuing institution - in the case of fiat money usually a central bank. The arithmetic unit function is heavily dependent on the other two functions.
Fiat money is often falsely equated with credit money, but credit currencies are only a subset of fiat currencies. According to credit theory , credit money is , on balance, covered by the monetary debt and the related "return pressure" or pledged collateral . However, if the quality of the collateral when lending is reduced, then, according to Friedrich August von Hayek, the neutrality of money and thus the market value of money also decrease.
In theory, fiat money allows any amount of money to be created. Usually, however, limits are set via conditions.
history
The history of fiat money is closely linked to the development of banknotes and their convertibility into real values. The respective monetary policy is decisive .
Towards the end of the 13th century tried King Gaykhatu of Persia extravagant by his lifestyle and rinderpest emptied state coffers through the issuance of additional money to refill. On August 13, 1294, he announced that anyone who did not accept the new "paper money" would be punished with death. The experiment only lasted two months and was a total failure. Trade came to a standstill and riots broke out in the bazaars . The king had no choice but to revoke his proclamation. He was murdered shortly afterwards.
The assignats were paper money put into circulation during the French Revolution . On September 8, 1793, the National Convention declared that anyone who refused to pay in assignats or who demanded a higher price for payment in assignats would be punished with death and his property would be confiscated. A reward was promised to those who notify the authorities of such transactions. In May 1794 there was a further tightening. The National Convention declared that anyone who asks what money the business partner intends to pay with before concluding a deal will be punished with death. Despite these measures, the assignats rapidly lost their value. When Napoleon Bonaparte introduced the franc as a new currency in 1803 , they were already practically worthless.
The United States Notes, also known as Greenbacks , were fiat money that was first put into circulation by the United States Treasury Department during the American Civil War . A congressional resolution limited the face value of the notes to be issued to just over 340 million US dollars . In contrast to the United States Gold Certificates, which were also used as money, it was not possible to exchange the greenbacks for gold coins on request.
There followed periods in which exchangeability for precious metals was repeatedly suspended.
In the 20th century, fiat currencies became the rule in the course of credit theory within minimum reserve systems with the issuing of credit money.
US President Franklin D. Roosevelt released the US central bank from the obligation to redeem US dollar notes submitted by citizens for gold coins. Private gold possession worth more than 100 US dollars was declared illegal by him in 1933 and punished with up to ten years in prison and confiscation of the gold (see prohibition of gold ). In 1944 the Bretton Woods system was introduced. With the Nixon shock , the unilateral , fixed exchangeability of US dollars for gold was ended, causing the Bretton Woods world monetary system with its fixed exchange rates to collapse in 1973 after the United States made the commitment to redeem US dollars for gold submitted by member states, no longer kept up.
reception
- A contemporary observer of the French assignat economy was Johann Wolfgang von Goethe . In his drama Faust II , he relocates the invention of paper money to the medieval imperial court. The alchemist Faust and the devil Mephisto persuade the emperor to sign a "slip of paper" which is worth a thousand crowns. Multiplied overnight, money creates a feverish boom until inflation devalues it. Not only literary scholars, but also Bundesbank President Jens Weidmann (see below) emphasize that Goethe shows that value creation “out of nothing” resembles alchemy , which wanted to make gold out of base metals.
- In the opinion of Bundesbank President Jens Weidmann , the independence of the central bank is necessary to ensure monetary stability: "Indeed, the fact that central banks can create money out of nowhere should be seen by many observers as something surprising, strange, perhaps even mystical, Dreamlike - or even nightmarish - occur ... Because if central banks can potentially create unlimited money out of nothing, how can it be ensured that money remains sufficiently scarce and thus of value? Given the possibility of creating money more or less freely, isn't the temptation very great to abuse this instrument and create additional leeway for yourself in the short term, even if this is very likely to cause long-term damage? ... The independence of the central banks is an extraordinary privilege - but it is not an end in itself. Rather, it essentially serves to credibly ensure that monetary policy can concentrate unhindered on keeping monetary value stable. "
- According to Heiner Flassbeck, one must bear in mind “how imperfect and crisis-prone the process of saving and investing would be if there were no“ money out of nowhere ”, that is, money created solely by the central bank or the banking system ... You can save always only from income that was achieved in the past, with the help of production capacities that produced precisely this income, no more and no less. If the working-class and entrepreneurial households now decide not to spend 15 or 20 percent of this income, the existing capacities can no longer be used to full capacity and the incentive for companies to invest decreases ... This inherent tendency of a market economy system to strangle itself, can, however, in principle be overcome in a paper money economy with a suitable monetary policy. "
See also
Individual evidence
- ↑ "Fīat" is present subjunctive 3rd person singular of the verb fierī ("to be", "be done"), homonymous to the present imperative 3rd person singular.
- ↑ https://web.archive.org/web/20171024205446/http://www.heg-fr.ch/EN/School-of-Management/Communication-and-Events/events/Pages/EventViewer.aspx?Event = patrick-schuffel.aspx
- ↑ Neil Wallace : "fiat money" , The New Palgrave Dictionary of Economics , Second Edition, Eds.. Steven N. Durlauf and Lawrence E. Blume., 2008., The New Palgrave Dictionary of Economics Online., [1] doi : 10.1057 / 9780230226203.0563
- ^ A b Larry Allen: The Encyclopedia of Money , Greenwood Publishing Group , 2009, ISBN 978-1-59884-251-7 , Introduction XIV
- ^ Gregory Mankiw : Principles of Economics , South-Western College Publications, 5th Edition, ISBN 978-0324589979 , p. 659
- ^ Glyn Davies : A history of money: from ancient times to the present day , University of Wales Press , 2002, p. 183
- ^ Rene Grousset: Empire of the Steppes: A History of Central Asia, 1939, pp. 207 ff
- ^ Sudha Shenoy, A Note on Government Monopoly of Money in Theory and History , In: FA Hayek, Choice in Currency, Institute of Economic Affairs, 1976, p. 36ff
- ↑ University of Frankfurt, Anne Bohnenkamp-Renken: The note here is worth a thousand crowns - on the paper money scene in Goethe's Faust
- ^ A b Jens Weidmann : Paper money - state financing - inflation. Did Goethe hit a core problem in monetary policy? , Deutsche Bundesbank dated September 18, 2012
- ↑ Heiner Flassbeck : The money from the printing press and the market economy , August 28, 2012 (PDF, 2 pages; 30 kB)