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fiat money

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fiat money

  1. 1. FIAT Money
  2. 2. FIAT Money Let it be done!
  3. 3. What is Fiat Money? • Fiat money is currency which derives its value from government regulation or law. It differs from commodity money, which is based on a good, often a precious metal such as gold or silver, which has uses other than as a medium of exchange.
  4. 4. Fiat Money
  5. 5. History of Fiat Money Fiat money originated in 11th century China, and its use became widespread during the Yuan and Ming dynasties. The Song Dynasty in China was the first to issue paper money, jiaozi, around the 10th century AD.
  6. 6. • All these pieces of paper are, issued with as much solemnity and authority as if they were of pure gold or silver... and indeed everybody takes them readily, for wheresoever a person may go throughout the Great Kaan's dominions he shall find these pieces of paper current, and shall be able to transact all sales and purchases of goods by means of them just as well as if they were coins of pure gold. • —Marco Polo, The Travels of Marco Polo
  7. 7. Yuan dynasty banknotes are the earliest known fiat money.
  8. 8. • An early form of fiat currency in the American Colonies were "bills of credit". • Provincial governments produced notes which were fiat currency, with the promise to allow holders to pay taxes in those notes. The notes were issued to pay current obligations and could be called by levying taxes at a later time.
  9. 9. Since the notes were denominated in the local unit of account, they were circulated from person to person in non-tax transactions. These types of notes were issued particularly in Pennsylvania, Virginia and Massachusetts. Such money was sold at a discount of silver, which the government would then spend, and would expire at a fixed point in time later.
  10. 10. 20th century After World War I, in theory, governments still promised to redeem notes in specie on demand. However, the costs of the war and the massive expansion afterward made governments suspend redemption in specie. Since there was no direct penalty for doing so, governments were not immediately responsible for the economic consequences of printing more money, which led to hyperinflation – for example the hyperinflation in theWeimar Republic.
  11. 11. • Kuan note is the oldest known banknote in the world. It was made in China circa 1380. • The first paper money in England was issued in the early 1600s as fiat money.
  12. 12. Fiat money has two characteristics. a) It does not represent anything of intrinsic value. b) It is decreed to be legal tender
  13. 13. Yuan dynasty banknotes are the earliest known fiat money.

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