Fiat money
Fiat money is a currency regulated by the central bank of a country. The value is based on credit, reliability, and other government factors to retain its purchasing power. Nowadays, fiat money does not hold any intrinsic value.
Post WW2 financial system
Bretton Woods system
After the end of world war 2, to strengthen the international economy and restore the international monetary order to trade and capital accumulation.
Since gold is the most and board acceptable precious metal for all counties, under the system, the US dollar holds at 1 ounce to 35 dollars ratio and other currencies will exchange in a fixed exchange rate to the US dollars.
United States magic tricks
While the economy of the European countries is getting recover, they soon find out the fixed exchange rate to US dollars is at a disadvantage to their countries. Therefore, starting to exchange their capital back into gold, as a result, the gold reserve of the united states decline. Plus, other members signed the agreement and withdrew their support to the US dollar, leading to a devaluation and rapid inflation.
At that period, president Nixon figures out a countermeasure to reduce the loss of the gold reserves.
Gold and fiat Money
President Nixon had decided to close the gold window and attempt to reduce the loss of gold. Later, after the Bretton Woods System and Smithsonian Agreement. Every country regulates and intervenes in their currency by the Free Exchange Rate System, which we are using today.
Modern financial system
What are the function and the value of money?
It acts as a medium of trade and stores the value. Deciding the value of money is based on supply and demand and the trust of the people. When people believe that value does not match, the market will recalibrate it.
Here’s are some iconic examples; the result of the money mismatch the value; therefore, it leads to a horrendous disaster.
Click here for the iconic examples
Trust and distrust
Since the day that the world detaches the fixed rate of exchange in gold. The fiat money that the central banks and the authorities print out no longer be based on the real, rare and worthy item (Referring to Gold, Silver and other precious items). Fiat money only relies on the creditability of the country and the belief of the people. It is based on intangible instead of tangible; maybe someday your money isn’t worth anything, not even a penny.
How does our social environment affect us?
Social media
Checking out social media, no matter Facebook, Instagram or even YouTube, you will notice Lots of video on social media teaches how to earn more money, by jobs, by side hassle or even by investment. In the end, we make it and receive fiat money. The mindset of the people is based on their fiat money currency system, but not precious metals or something that could retain its purchasing power in exchange.
The modern education system
All the education system in this world does not teach us about financial education, but skills for getting a job. No one knows about money; some might argue that taking economic and accounting classes is about money, but just the principle and technique of calculation, far not enough.
General Public
The general public usually lacks judgment and lack education in distinguishing how the financial system works. Additionally, most people tend not to be interested in keeping learning but maintain their status quo.
Saving ourselves
How could we save ourselves?
Purchasing and keeping our assets as high liquidity of precious metals or even cryptocurrency could retain our purchasing power and avoid any economic crisis. Still, cryptocurrency doesn’t withstand the test of a long time. If so, Avoid keeping these assets from the system. For example, there’s a possibility to cease and be confiscated by the government in the bank.
People who are still sleeping
Anyone who is an open-minded thinker could accept any possibility to protect themselves. Anyone unwilling to learn or to be stubborn, anything could not change their will and belief, but their experience changes themselves.
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