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Fiat Currency vs. Gold: What Should be the Mode of Payments?

A small metal briefcase holding bundles of dollars

For a long time, whether gold should be made the primary mode of payment in economies over a currency has been debated.Many argue that gold has an underlying value attached to it. In contrast, the counter-argument is that fiat currency is much more than just a currency without anything tangible used to pin its value against.

Let’s go over each of these concepts in detail and see which comes out on top.

What is Fiat Currency?

This is a term used for all currencies worldwide issued by governments to be used as the main currency for that country. Its main feature is that any underlying asset or commodity does not back it to determine its value. Instead, it derives its value from the government or market forces if it’s a free float.

Benefits of Fiat Currency

A key benefit of fiat currency is the stability that it entails. Since it’s issued by the government—who controls the monetary policy—there is a firm grip over its supply. This helps mitigate the impacts of economic shock and recessions in an economy.

Furthermore, fiat money isn’t susceptible to business cycles in the economy, unlike commodities. This further strengthens its case of being a stable legal tender in an economy.

Disadvantages of Fiat Currency

Fiat currency’s limited supply may sometimes also work against it, as proven by the financial crisis of 2008. Although a situation of this magnitude isn’t widespread, this feature of fiat money can prove to be disadvantageous at times of crisis.

Pros of Gold

Some argue that since the currency is backed by an underlying commodity such as gold, it’s safer and lesser prone to fluctuations and inflationary effects. There is higher public confidence in the currency this way.  Additionally, the worldwide acceptance of gold would bring exchange stability as well.

Cons of Gold

To make the gold standard the main legal tender, economies worldwide need to be on the same page. However, this is not possible. An imbalance in this aspect would limit the effectiveness of the gold standard.

Moreover, governments would also be unable to make changes to their money supply that can help push the economy towards a growth phase when needed.

The Verdict

The gold standard has been the principal legal tender for centuries. However, almost all countries in the world have now adopted fiat currencies. More power in the hands of the government to control the money will help stabilize economies. Thus, it’s better to adopt the fiat currency method.

The gold standard being the mainstream mode of payments may not be a reality for now, but you can always invest in gold coins, buy gold bullion bars, and reap its multiple benefits. We also offer silver and platinum products apart from gold. So, get in touch with us right away to get started with one of the most reliable gold investment companies out there!

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