I've kind of had a little thought in need of opinion over economy. So..

Do you think that the use of a Fiat Currency [(money that's only worth what people believe it to be)] could substantially impact the value of actual worthwhile material?

As if, for example, a nation that has always used gold and/or silver as currency decides to begin using paper money much like others. But after only forty or so years, and for some undefined reason, it is disbanded by everyone, who simply return to the ways of payment before.
Would the use of the paper money in that nation after so and so amount of years cause the gold and silver used before to be worth quite a bit less or even more than it actually was? Opinions?

hanz0 suggests defining fiat currency for the benefit of others.

Fixed.

I highly doubt the coin system will be around 50-100 years from now. My opinion is that the coin system will get phased out and paper money will take over.

Here in Australia they want to get rid of the 5c coin. I wouldn't be surprised if they do the same to the pennies in America.

They will then probably do the same with the other coins, slowly but surely.

They've already done so in Canada. In America, pennies cost more to make than their worth. If movements toward removing the penny hasn't happened yet, they're bound to happen soon.

Other than the fact that pennies aren't worth anything is the fact that inflation has made it so pennies are too small a denomination to practically purchase anything. If inflation is really that bad that everything up to a dollar is too small to practically purchase anything with, maybe coins will be out-phased (or coins will just count for bigger amounts of money).

Back on topic...


Since fiat money has no intrinsic value (i.e., not influenced by reality (i.e., gold and silver)), the use of fiat money shouldn't affect the value of gold and silver.

Well, I may be a tad incorrect here (even quite a bit), but if that country had been using a gold standard. All of the gold in the federal bank would be devalued quite a bit, I believe.
I'm assuming the same would happen in more civilian like scenario's?

I'm just going off the theories I was taught in my macroecon class, so I'm not rock solid on this either. Do you know if there's any real-life cases of this happening? Reverting from fiat to gold, that is?

No. I couldn't really think of one unless a nations economy simply crashed, and government lost complete control over the market.

you also have to think if a government were to use rare materials like gold as as a form of currency
A.Where is the gold coming from
B.What if they run out of gold
also think about what happened to oil America ran out of oil thingies amd when to other countries trying to find oil which is why we are having a war right now.
This probably makes no sense im 11.

RayA75's Moderated Message:

Keeping this post here for the sake of the post directly under this one; user warned for not having much a clue on the discussion he joined

I'm going to discuss whats I made bold here. If gold if used as currency. It will be circulated through a banking system and a source for obtaining new quantities gold will eventually be made obsolete(to an extent).

Fiat money isn't actually valued at what people believe it to be. There's an actual way to determine value for currency not based on a gold or silver standard.

Fiat money is basically a promise of future work or substance. What determines the value is how secure a promise that is. Therefore, it's basically valued based on a country's level of "credit" for lack of a better term. This is similar to a gold or silver standard, as notes following either of the aforementioned standards have a solid, concrete source of "credit" to give the notes value, as the promise of substance is already backed up. However, their value is limited to the size of the source of gold or silver. However, fiat money allows money to basically be produced out of nothing. Work is a resource that is limitless in supply, so fiat money has an infinite-sized source to base their value off of. This is both a blessing and a curse. It allows for unparalleled growth compared to gold or silver standard currencies, but it also gives a certain degree of riskiness that isn't associated with them. Since the value of fiat currency does not have an accurate "value" to anchor it, it's value will fluctuate based on how much faith people are willing to put into the promise that the currency provides (basically how credit works). This means the value of fiat currency is at greater risk of crashing compared to quantitative standard currencies.


That being said, currency, in theory, should not be able to affect the value of goods. Currency, for all intents and purposes, really is just an arbitrary measurement to access worth. By measuring an object's length, do you change the length in the process? The obvious answer is no.

However, that's in theory. Since currency is a measurement to access worth, a qualitative rather than a quantitative value, it has the ability to influence the worth of the object it's measuring. An example would be that more expensive wine is perceived as tasting better and being worth more than cheaper wine, even if it's really the exact same wine just given different prices. So while the goods are identical, by giving one of them a higher price, you give the impression that the worth of the object is somehow greater, and actually make the worth of the object increase in the process. At the same time, lowering the prices of objects can actually increase the perceived value because of the value of saving money.

As a real world example, try googling Tulip Mania, or the Great Tulip Crash. Basically, and I shit you not, in the 1600s, Holland managed to crash their economy because the perception of the value of tulips got into a massive circlejerk with currency values and resulted in a massive bubble in the tulip bulb market, which inevitably resulted in a crash when somebody finally said, "Why the fuck am I paying 2 years salary for a fucking flower?" And not just any 2 years salary mind you. Wealthy business men 2 year salaries. And the flowers died in 2 years anyways. But for their credit, it was supposedly a very pretty tulip. Anyways, there's a real-life example for how currency and tulips fucked up a country's economy.


It's also worth mentioning that everything below the value of a quarter produced by the United States is not worth producing. There's a precedent for this as well. America had discontinued the half-pence a while back. If you count for inflation, the value of the half-pence comes out to around the value of a dime nowadays. And American military bases supposedly have done away with all denominations below 25 cents.