Fiat
Money
Building the Cash Economy
Chartalism is
a theory of money which
argues that money originated with a state’s attempt to direct economic
activity. Money is not intended to be a solution to the problems with barter or
as a means with which to monetize debt. Fiat currency or money has value in exchange because it empowers the
sovereign state to levy taxes on
economic activity. The taxes are payable
in the currency they issue. Fiat money is
a currency without intrinsic value.
Fiat
money has value because a government maintains its value or because parties
engaging in exchange agree on its value. Fiat is a
binding edict issued by a person in authority. It was introduced as
an alternative to commodity money and representative money. Commodity
money is created from a good, often a precious metal such
as gold or silver, which has uses
other than as a medium of exchange. Representative
money is similar to fiat money but it represents a claim on a commodity which
can be redeemed to a greater or lesser extent in value.
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