MONEY: What is the value of a fiat currency?

Are Fiat Currencies Headed for a Collapse?
Published: Friday, 27 Jul 2012 | 5:27 AM ET
By: Lisa Oake
Anchor, CNBC Asia-Pacific

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Shockingly, CNBC even points out in the article that “Every single fiat currency in history has collapsed, this time will be no different.”

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A fiat currency derives its worth from the issuing government – it is not fixed in value to any objective standard. That means central banks can print as much money as they want. If an economy is struggling, injecting more notes into the system juices activity but lowers the value of the currency in question.

Mark Mobius, Executive Chairman of Templeton Emerging Markets Group, says investors will soon start to demand fiat currencies be backed by gold or other hard assets.

“It’s already happening, you’re beginning to see that trend with central banks stocking up on gold. The estimate is that at least half of the buying is central bank buying. They are looking to the day when they can say okay, our currency is backed by gold and therefore we’re a strong country,” Mobius told CNBC Asia.

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All one has to do is study a little history and you have to be afraid.

Weimar Republic, Zimbabwe, Iraq — come immediately to mind.

We’ve been the guinea pigs in a hundred year experiment in a fiat currency. Now the free ride is coming to an end.

The fun question is how does it unwind?

With a thud!

Does the Carter-style inflation return? Or does it just start to accellerate, continue, and never stops until the value is zero?

When the wild ride starts, it’s too late to covert to hard assets.


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