Reasons why Fiat Money wins over the Gold standard

Fiat money’s derived from the value assigned by a country’s government and isn’t backed by any type of commodity.The system in which value of currency is back by gold or silver is Gold standard or the silver standard.Both of these methods have some uses and drawbacks but in the present situation in the world Fiat currency would be preferable.

First of all,their isn’t enough gold and silver  in this world to serve as money.The central banks all over the world have exponentially issued currency but that wont be available.In an economy where gold standard is used the supply will remain the same and  most of the supply would be in the hands of a select few and could cause a lot of problems.The central banks now cant use various monetary control tools to control the flow of money and hence the control of economy.

Secondly,the Gold standard requires a lot of gold and silver to be stored in vaults and their will be instances when people might have to carry gold around.The more you think about carrying gold around in this age of electronic and use of plastic or internet money the whole concept of coinage begins to seem something of the past.Also Gold restrains growth of the economy.Their is a requirement of a growing cash flow for a growing economy and for growth their is requirement of a medium rate of inflation which using gold standard wont provide.Sure growth will also happen while using Gold standard but the rate will be a lot slower.

During the world war their was a huge devaluation of gold.Many countries like the Britain and Germany caused the devaluation of gold in 1914 and during this period their was a huge inflation was their which enabled them to  pay for the world war II.So the rules of gold standard can be easily broken and used in a devalued form which would in the end cause a great recession in the economy.The countries having a huge gold reserve would greatly benefit and others would loose a lot in this case.In USA would have a lot to gain in this type of system but other countries would loose a lot in that situation as every country in the world doesn’t have a very large reserve as the USA has in it’s vaults.

The mining countries would also benefit from this type of money standard as they can increase their supply of gold and increase the amount they can issue.African countries  rich in gold could  continuously grow while others are restricted from growth .The gold standard would also target the rich people and they would be the one’s to rule the world while others will have limited or no monetary capacity whatsoever.

These are the reasons why the world runs in an imaginary and government backed currency rather than gold or any other commodity.Fiat money was developed and is widely in practice all over the world.Fiat money has flexibility and ensures that governments can control the economic conditions of the country at the level which is favorable to the country.

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