DeathofMoney examines the current global monetary system, centered around the dollar. If current policies continue, a total collapse is imminent. You should prepare for the worst.
Key idea 1 of 10
No modern currencies have any intrinsic worth – only the state guarantees they are worth something.
As recently as a few centuries ago, if you wanted to buy a loaf of bread from a baker, you had to pay with a piece of gold or silver, equal in value to the bread. These days, you can just hand over a piece of paper, a banknote, that isn’t particularly valuable in itself. So why does the baker accept this scrap of paper as payment for his labors?
Simply because the government gives the paper value. This phenomenon applies for all modern currencies and is called fiatmoney, fiat is Latin for letitbedone.
Fiat money is basically a contract between its users and the state. The state has effectively promised the baker that he can exchange the banknote for something else of value, like flour or salt. As long as everyone trusts in the state to give banknotes this so-called extrinsicvalue, they don’t need to have intrinsicvalue like gold coins once had.
Severing the connection between currency and matter of intrinsic value is as new as 1972. Until then, the global economy relied on the goldstandard, where the American government had pledged to fix the value of the dollar to the price of gold at a fixed rate of $35 per ounce of gold. Other countries then fixed their exchange rates to the dollar, so actually all currencies were linked to the price of gold.
But after the financial crisis of 1973, governments around the world lost their confidence in the ability of the US to maintain the fixed rate between dollars and gold. The US concluded that it had to sever the connection to gold, and let the currency – and therefore every other currency – fluctuate freely.
After this point, every currency has truly been devoid of material value, and can only be influenced through government monetary policy.
But today, the modern global economy that is based on freely floating currencies is under attack. In the next blinks we will find out why.
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