The End of Fiat Currencies?

October 26th, 2008 by admin | Filed under Daily News, Money Management, UK Bank Accounts, UK Banks, World Banks.

The maths of fiat currencies is easy, but the basic flaw in a fiat system is so clear to everyone who understands it. The huge shock for most people who don’t understand fiat currencies is that from the day of their inception, their failure is a mathematical certainty…the eventual collapse is guaranteed.

Let’s say that country A has a fiat currency. It central bank issues £100 in bank notes to the treasury of the country which has an attached interest rate of, let’s say 5%. So there are £100 in circulation and the treasury (the people of the country) owe £5 in interest payments each year.

Let’s say that only one year later, the people of the country decide that they don’t like this system and decide to pay back the money to the central bank. They gather up all the currency in the country and give it back to the central bank…but they only have £100…since that is all the currency which exists in the country. Where does the money come from to pay the debt?

The answer is that the currency must come from the central bank…and the dirty secret of FIAT currencies is that this is the reason for inflation….the slow expansion of the money supply. The central bank must continually print more and more money in order to meet the demand for its bank notes so that it can continue to receive interest payments on the money in circulation which it has created out of thin air and which is issued as debt with an interest bearing element attached to it.

The end result of this system without fail is slavery. Because it is impossible for the people in the country to ever free themselves from the debt that the currency creates. The other effect is a hyper inflationary collapse of the currency as the ability of the population to meet larger and larger interest payments runs up against a mathematical barrier.

These characteristics signal the end of a FIAT currency and usually are accompanied by a revolutionary change as the population frees itself from it enslavers.