Apparently the financial voice for baby boomers (those born post World War II), Neale Godfrey has a poke at describing fiat and bitcoin, and differences via a Forbes article. Neale starts with the explanation that the fiat she is referring to is not the model of car. And to be fair, most people in this generation and the last do not have an understanding of what fiat in the monetary sense is.
Fiat is commonly referred to as paper money, centrally controlled and inflatable to infinity. Usually created by a government and defined as the countries legal tender and the means to pay one’s taxes.
Bitcoin and Fiat
Neale then proceeds to point out “the biggest phenomenon around fiat currency today: Bitcoin.” Which is essentially correct, however, she then labels bitcoin as a fiat currency that is not controlled by any government.
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One of the purposes of her article is to guide the readers, the baby boomers, to talk with their children and grandchildren, to explain to them what fiat is.
It should be clarified that fiat is not always a medium of exchange. The Zimbabwe dollar, for example, it is a fiat currency, but good luck trying to use Zimbabwe dollars as a medium of exchange.
All fiat currencies die, and though taking the world off the gold standard has led to an increased lifespan of the USD, the phenomenon is only allowing the exacerbation of the global situation.
Then she references the Russian ruble as another “fiat currency to avoid because of deflation.” Another correction in order here is that when a currency ‘suffers’ (and I use the term loosely) from deflation it is gaining value, when it is losing value it is due to inflation.
Possibly because she was brought up in the era where it was drilled into people that inflation and lowering the value of your wealth is great. Admittedly, we are still in the vestiges of that era though more people are becoming aware that the loss of value of your wealth is probably not a good thing.
And then unfortunately Neale defines Bitcoin as “The newest fiat currency on the market.” Her following descriptive of bitcoin is almost correct, as she advises description of it as an “online payment system that can be used directly without a central administrator, like a government body”.
I am not sure about you, but the last time I checked it was banks and financial institutions that processed financial transactions, not governments.
And yes, she labels bitcoin as a “virtual currency.” Even after her description and links to a 100% failure rate of fiat currencies, she then asks the reader if they are “Confused?” who would not be after the misinformation?
One of the most ironic statements she makes is;
Our fiat currency is “backed up” by the faith in the U.S economy.
The statement is akin to saying that the USD is backed by having faith in faith, of a 100% failure rate system.
Followed by another big miscomprehension referencing bitcoin, that bitcoin is not backed by anything, just market “buying power”, understandable from those not well educated in the bitcoin sector or the technology behind it.
Then she follows these statements by insinuating that bitcoin could easily become over inflated and worthless. Perhaps she has missed the telltale signs of the USD losing 98% of its value over the last 100 years?
Hopefully, this will spark some conversation with your elder generation. How do they see the world of fiat currency? Are they comfortable with the use of credit cards? How do they feel in this world of bankers and their potential to drastically inflate the monetary supply? What lessons should we learn from the past?
You should gently bring the questions to the dinner table in the evening. Others might not be experts on the subject of the money sector, but it’s a worthwhile conversation we all need to be having with our parents and grandparents. And, of course, remember to point out that the foundation of bitcoin, block chain technology, has far wider potential than for use as a currency.
We will leave you with this question as a potential conversation starter;
Why would you buy and drive a car when you can get a horse?
Images from Shutterstock.