Talk:Fiat money/Archive 1

Old Talk:Fiat currency
The definition at sounds a little different...
 * yes, but the word "ficuciary' carries a lot of weight. These definitions at xrefer are strictly from neoclassical theory, they are not balanced for the Marxist or green view, which requires more investigation of the assumptions... for instance the term ficuciary.  That said, it doesn't hurt to wrok off the neoclassicl definitions, since they're exact.  That said, this article has a problem, which is that "fiat money" is really a loaded term.  We should talk about backing and clearing, not about "types of money" if we want to be general.    See political economy for a list of the issues - the neoclassical phrases are chosen to be useful in game theory etc.... not what the other branches care about. --24 (signature appended by Magnus Manske)
 * I think it would be best if the article here would start with something like the "neoclassical theory" definition, then have the Marxist/green view (labeled as such!).
 * that's exactly what I just did to political economy which drastically improved it...


 * When I read the beginning of the current article, I instantly get the impression "this is something bad!".
 * has style problems - serios ones...


 * And that's something that, IMHO, should never happen in an encyclopedia article! It should say "fiat money is..." without assigning any value, subtle or not.
 * unfortunately, this is the single most contentious topic in economics. I have literally heard hundreds of hours of crap from people about what fiat money is and isn't.  Basically, even saying it exists is assigning a value.  Neutrality is near impossible.


 * Then, it can say "it is considered by... to be...", open and clearly labeled as an opinion. IMHO, the topics you choose to write about are not in question, and neither is most of the contents, but the way it is presented. I am sure we can work on the form. --Magnus Manske, Tuesday, April 9, 2002
 * thanks. Yes, in general, the rewrites have been improvements, and they tend to come when someone says 'what's this crap?' and gets attitude about it, finds the missing material, and then it all gets worked in together.  Others in need of a form rewrite might be moral purchasing, intellectual capital, human capital, commodity markets, green economists, anti-globalization movement.  These are the rest of the most contentious topics in economics...

The last paragraph says something like 'Between the end of World War II, ...' - that doesn't make sense, there should be two times for a 'between' statement. I had a quick look at the US dollar article to see if I could fill in the gap, but it's not clear to me what the period in question actually is. Can someone else fix it please? - S

The article leaves an impression that the gold standard was a kind of widespread historical standard without qualification other than that the silver standard was an alternative. In fact, the gold standard only became widespread quite recently, due to widespread western wealth. When societies were poor, the standard was whatever people could afford. Thus the usage of lesser metals like silver (the British pound was original a pound weight of sterling silver, thus Pound Sterling) or copper (Roman sestercii), or even non-metals.

Will someone correct it, or should I?

Is Ultra-conservative the right word to use in describing those who support the gold standard? I know that is an accurate description, but since conservative has formed a destint political meaning and most of those who oppose fiat currency are Libertarians should we develop a better term? --Miked84 22:20, 14 December 2005 (UTC)

Ultra-conseratives is inappropriate. Changed to libertarians. Adding ultra to conservative is meaningless, and attributing the advocacy of hard money to conservatives is misleading and inaccurate.72.147.32.103 02:32, 24 December 2005 (UTC)

Strange wording
''Fiat Money = What your government forces you to pay as payment in taxes. You can't pay taxes to the government with Non Fiat Money. Both the Gold and Silver advocates and the Fiat Money advocates are incorrect and wrong.''

The truth and fact is there is a cause and effect as to what a nation uses as money at the beginning of the money laws.

Sounds like a point of view and bad formatting to boot. Tinus 22:11, 24 December 2005 (UTC)

Fiat money is not government-declared?
This article says fiat money is money with no intrinsic value, rather than money that is declared by the government to have value.


 * Unlike what Wikipedia says on the subject, the essence of fiat money is not that it is money declared by a government to be legal tender. It need not derive its value from the government demanding it in payment of taxes or insisting it should be accepted within the national jurisdiction in settlement of debt. Instead the defining property of fiat money is that it has no intrinsic value and derives any value it has only from the shared belief by a sufficient number of economic actors that it has that value.

If true, that would be a change to the very top section of this article, at least.

dfrankow (talk) 20:23, 26 November 2009 (UTC)
 * As already noted here, a blog post is not a reliable source. The current lead sentence 'Fiat money is money declared by a government to be legal tender' is sourced to the 1907 publication Money and Investments.  We can replace the current definition when we have an alternative reliable, published source. - Crosbiesmith (talk) 19:15, 27 November 2009 (UTC)
 * As stated below, I have added Keynes's definition to the top section of the article. - Crosbiesmith (talk) 16:09, 29 December 2009 (UTC)

Common Sense
Federal Reserve Notes (FRN's) represent US Obligations, not US wealth. Currency does not necessarily have to be based on a "Gold" or "Silver" standard. The evolution of paper and coin currency in America was born of convenience, as individuals would deposit wealth (gold, silver, etc) at a bank for safe keeping. Banks would offer "Warehouse Receipts" in the sum of the deposit. Individuals would trade the receipts rather than withdrawing their wealth, paying their dues, only to have the recipient of said wealth redeposit the wealth back into the bank. By definition currency is a substitute for wealth, and required to be backed by a commodity that is universal and liquid. Federal Reserve Notes are neither, rather they are IOU's to be redeemed against future production. Additionally the Federal Reserve System also keeps reserves of foreign currencies, bonds, and other such assests, none of which are commodities, and are difficult to liquidate. Most Foreign currencies, bonds, like Federal Reserve Notes are not backed by a commodity thus their value is questioned.

Franklin Roosevelt, along with the Federal Reserve Bank, stole wealth from US citizens by way of Presidential Executive Order 6102 which outlawed the ownership of gold by private citizens. Essentially this can be looked at as a form of slavery as FRN's are symbolic of debt, not wealth. The collateral on said debt is the future productivity of the nation, i.e. its citizens. Citizens thus are required to pay the interest of said debt in the form of taxes through labor. After World War I England and most of Europe moved away from the Gold Standard and instead kept reserves of foreign currencies, especially FRN's. This in part is symbolic of our National Debt.

Foreign currency and bonds (especially triple A rates govt bonds, like those of France, Germany and the UK) are amongst the most liquid financial assets in the world. Furthermore, somebody's debt is someone else's credit, so your assertion that they do not represent wealth doesn't really make any sense. Your argument is self defeating, if debt isn't wealth, then a gold backed currency can't work because even when they were payable in gold, US gold certificates were simply debt (The US govt owes the bearer such and such an amount, ie it is in debt and promises to pay that debt in gold coin), and hence not wealth. You also state most foreign currencies are not backed by a commodity and hence their value is questioned, but you don't mention by whom.

Start again?
In general, the Wikipedia articles (gold standard, fiat currency, related ones) need to attribute beliefs to the relevant economic schools of thought. Many of the statements in the current articles appear to be statements of faith, not fact, and they don't, in general, acknowledge which school of thought they are from. This BIG problem kind of overwhelms a lot of the little problems.

This article is one of the most biased, propaganda-filled articles on Wikipedia, and should probably be completely re-written. It is full of arguments and rhetorical questions, rather than a simple statement of facts and information. One would hope that the article presents different viewpoints equally, instead of one viewpoint, the opposing viewpoint, and then why the opposing viewpoint is wrong. Information on this articleis controlled by people who feel strongly about one position on the subject, and they are the only ones who bother to write and edit the article. In short: this article is what's wrong with Wikipedia.


 * Yes, this article is FULL of propaganda. It's pretty disturbing... Someone needs to overhaul this... ask123 (talk) 19:51, 26 March 2008 (UTC)


 * Agreed. At its worst, Wikipedia serves as just one more place to entrench ideas that "everybody knows" but that no one can source to any satisfactory degree.  A good example is the statement that the historical norm has been the use of commodity-backed currencies.  This should be sourced to a history book or history paper but instead is sourced to a person named Nick Jones who wrote an article about how in his opinion fiat currency is a sham.  RaulGroom (talk) 21:57, 3 September 2009 (UTC)
 * It appears the Nick Jones article is used only as a source for the last sentence of the paragraph, making the remainder of the paragraph unsourced. I will tag it as such. - Crosbiesmith (talk) 11:13, 6 September 2009 (UTC)

Bad start
I have several problems with this article but let's just start with the first sentence:


 * Fiat currency or fiat money, is money that is current or legal tender as satisfaction for money debts simply and only by government fiat i.e. by arbitrary order or decree, by nothing more than law.


 * 1) To define currency in terms of the word "current" is reflexive and therefore not helpful.
 * 2) Not all forms of a fiat money are legal tender.  Legal tender refers to the lawful (i.e. legal) forms of payment (the meaning of the word "tender") in a particular currency.  What constitutes legal tender depends upon (a) the currency, (b) the jurisdiction, (c) what the payment is for, and (d) the amount of the payment.  In some jurisdictions only certain coins of a currency are legal tender for that currency, in others only the bank notes, etc etc.  Not more than a small number of coins can be used in some places, for some things.  So the term "legal tender" is used incorrectly here.
 * 3) Again and again in WP we find the assertion that all debts can be satisfied by the payment of "legal tender".  No.    Legal tender is simply a form of a currency which MUST be accepted in discharge of a debt denominated in that same currency.  If I owe pounds sterling I cannot legally tender (see where the term comes from?) US dollars.  And vice versa.

OK. I'll stop there, for now. Paul Beardsell 04:15, 6 January 2006 (UTC)


 * I agree with all your points. Fiat Currency is merely currency that is created by a government and is accepted in a community as money proper. The reason for the acceptance may vary from coercion, prohibition of alternatives, superior stability or some other form of superior utility. Fiat Currency is characterised by the fact that it is not redeemable for anything (ie it is not a promisory note). As such it is one form of money proper (there are other forms such as commodity money) and it is not merely a credit substitute. Terjepetersen 10:15, 7 January 2006 (UTC)

What if, on the currency, it's stated THIS NOTE IS LEGAL TENDER AT MCHAPPY'S BURGER STAND, here is example of legal tender where no gov't is required, before it is considered legal to tender. Marvelous marvin (talk) 16:21, 1 March 2008 (UTC)

@Marvin - If the government isn't involved than it isn't LEGAL tender. This would more or less be called... a coupon. The word legal is usually indicative of government or "law" involvement. —Preceding unsigned comment added by 206.253.186.23 (talk) 12:57, 12 March 2008 (UTC)

Bad example
I find this statement deceiving:

"One recent example was the Argentine bust which followed the unravelling of its “currency board”. Instead of being linked to gold, the peso was linked to the U.S. dollar, which served as the hard money basis. When an economic crisis hit, dollar reserves fled the country, causing the monetary basis to collapse."

How can "dollar reserves flee the country", I think what must have happened is that they were spent. This hardly seems like a problem with the monetary system, but rather simply a reflection of a collapsed economy. If you spend all the money, you've spent all the money! In effect, wouldn't this be a testament to the success of the system, the government was not able to pretend that they hadn't spent all by simply printing more money, ensuring that the money did not inflate?

___________________________________________

Answer to "How can dollar reserves flee the country?"

If a central bank (in this case, Argentina) stands to exchange 1 - 1 with the US dollar, they issue pesos and hold dollars in reserve (to "Back" their currency).

If someone with a lot of pesos doesn't believe that the central bank has enough dollars to back their currency, or believe that the peso is overvalued (which is the same thing) they can engaged in a speculative attack. Basically, they sell pesos to the central bank and receive dollars. This drains the reserves in the central bank and often causes a devaluation in the currency. —Preceding unsigned comment added by 74.232.140.88 (talk) 03:21, 14 February 2008 (UTC)

OK, this example is meaningless
"A further illustration of the irrelevance of physical convertibility can be seen by supposing that a bank issues two kinds of paper dollars: one redeemable for one ounce of silver throughout the year and another redeemable for the same amount of silver, but only at the end of a year. If the market interest rate is 5%, and if it is costless to issue paper dollars, then the inconvertible dollar must start the year worth about .95 ounces, rise to about .97 ounces at mid-year, and finish the year worth exactly 1 ounce. Any other values would result in arbitrage opportunities. For example, if the inconvertible dollar started the year worth .96 ounces, then each time the bank received .96 ounces of silver in exchange for a newly-issued dollar, it could lend the .96 ounces at 5% interest, be repaid 1.01 ounces at year-end, pay off the paper dollar with 1 ounce, and earn a free lunch of .01 ounces.

What is the value of the convertible dollar? A little reflection will convince the reader that it too must start the year at .95 ounces, reach .97 ounces at mid-year, and finish the year at exactly 1 ounce. That is, the issuing bank must actually raise the amount of silver it will pay for a dollar over the course of the year, or arbitrage opportunities will result. For example, suppose that at the start of the year, customers can deposit .95 ounces and get one paper dollar in exchange — a physically convertible dollar that can be returned to the bank for .95 ounces if the customer desires. If that dollar remained at .95 ounces over the whole year, then at the end of the year the bank will have received a free lunch of .05 ounces — a free lunch that will attract rival bankers willing to pay 5% interest to the holders of their dollars."

How can any logic be derived from this example without specifying how the notes are issued to start with? They don't just get issued, they get sold, but at what price? How much silver is paid for these two notes to start with? Obviously at the begining of the year, one would pay the bank a full ounce for the note that is convertible (back to 1 ounce), but only .95 ounces for the one that wasn't! This example is therefore bogus.

I agree, I am going to remove those two paragraphs as it is more confusing (and erroneous I believe) than it is informative over what I see is something quite simple. A physically convertible currency is affected by the interest rate of the specie or commodity that is backing it. And by the way, no one knows what the actual interest rate for anything will be for the year. That would be the same thing as predicting the future. Also, a 5% interest rate would not increase 0.95 to 1; it would increase to 0.9975. 5% interest would raise 1 to 1.05.--Acefox 00:10, 25 November 2006 (UTC)

Currency as a brand
I've wondered for a long time why people are willing to accept a currency that is not physically convertible. And "financially convertible" sounds to me too much like "bootstrapping", which is worrysome to me as a mathematician.

So I recently discovered some important fact of the media / ad industry, namely that adverts often promote something other than the owner of the relevant trademark. For example, shop owners will seldom put up a sign saying "Ice cold softdrinks available here". Instead they'd rather put up a "Coca-cola" sign, giving "Coca-cola" free media exposure.

Now many ads include prices e.g. "Coca-cola now only $1". Therefore currencies gets free media exposure almost everywhere you look. My guess is that this media exposure is of the order of a hundred of billion of dollars every year (based on global adspend). This means that the dollar is the largest brand to ever exist. It also means the brand equity of the dollar rivals the value of the gold backing the dollar.

I'm sure someone figured all this out before me, but why does the article not mention any of this ? -- Nic Roets 13:49, 6 August 2006 (UTC)
 * To elaborate : Paper carrying the signature of the central bank president trade at a premium to a blank piece of paper, just like an official FIFA soccer ball will command a premium over an unbranded soccer ball. -- Nic Roets 19:28, 10 August 2006 (UTC)


 * If the idea has indeed been mulled over before than it should appear in some economic journal or newspaper somewhere. Find the citation, and, then, it can be included. However, until then, it's just your theory, and personal speculation does not merit inclusion on Wikipedia. I'm not disparaging your idea. Your numbers and idea may very well be correct. It's certainly conceivable. But, still, we'd have to take your word for it. And that doesn't cut it on this site. Basically, the idea must be based on more than your personal speculation or insight that has no reference or backing to prove it. Your idea may make sense and work out mathematically but still not be true so far as the way fiat currency has actually developed in reality. (i.e. you could be putting 2 and 2 together to get 4, but, as it turns out, it wasn't a math problem.) If you could add your personal thoughts on a topic to any Wikipedia article, imagine all of the original research (aka misleading/false info) that would appear in Wikipedia articles...oh wait, there already is unverified, unsourced original research on Wikipedia... ask123 (talk) 19:59, 2 January 2009 (UTC)

NPOV/ factual accuracy
I put the warning due to this:
 * The importance of financial convertibility can be seen by imagining that people in a community one day find themselves with more paper currency than they wish to hold — for example, when the Christmas shopping season has ended. If the dollar is physically convertible (for one ounce of silver, let us suppose), people will return the unwanted dollars to the bank in exchange for silver, but the bank could head off this demand for silver by selling some of its own bonds to the public in exchange for its own paper dollars. For example, if the community has $100 of unwanted paper money, and if people intend to redeem the unwanted $100 for silver at the bank, the bank could simply sell $100 worth of bonds or other assets in exchange for $100 of its own paper dollars. This will soak up the unwanted paper and head off peoples’ desire to redeem the $100 for silver.


 * Thus, by conducting this type of open market operation — selling bonds when there is excess currency and buying bonds when there is too little — the bank can maintain the value of the dollar at one ounce of silver without ever redeeming any paper dollars for silver. In fact, this is essentially what all modern central banks do, and the fact that their currencies might be physically inconvertible is made irrelevant by the maintenance of financial convertibility. Note that financial convertibility cannot be maintained unless the bank has sufficient assets to back the currency it has issued. Thus, it is an illusion that any physically inconvertible currency is necessarily also unbacked.

It doesn't make any sense and seems to assert as fact that whether or not there is a gold standard "doesn't really matter". In the example, what is going on? The customers deposited silver for a warehouse receipt entitling them to silver. Now, how does issuing bonds head off the run? The bank still has to pay those bonds with interest, despite doing nothing to increase its reserves. The passage would imply that I can start a storage facility for some asset, then pocket the asset for myself, and nobody would mind. If someone doesn't clarify what this passage is saying, I'm going to have to delete it. MrVoluntarist 16:26, 15 October 2006 (UTC)
 * Let me state right off that I have little familiarity with monetary theory, so feel free to ignore me. However the example seems fairly clear to me.  The issuing of bonds in the example has nothing to do with heading off a run, but offering "financial convertability" as an alternative to "physical convertitibility".  The bank pays the interest owed with the interest paid on loans (not in example).  It works for money and not other assets because it is not the actual "thing" (gold, silver, etc) that is desired in the case of money, but its purchasing power. --T. Mazzei 02:21, 24 October 2006 (UTC)
 * I understand that the passage is explaining the relative importance of physical or financial convertibility, but it quite clearly does have to do with heading off a run. Like it says right here: "If the dollar is physically convertible (for one ounce of silver, let us suppose), people will return the unwanted dollars to the bank in exchange for silver, but the bank could head off this demand for silver by selling some of its own bonds to the public in exchange for its own paper dollars."  Nor will the incoming loan money cover it, because the incoming loan money is already allocated to pre-existing obligations.  The passage implies I can start e.g. a gold warehouse, issue receipts, steal the gold, and then keep issuing bonds to get new gold receipts to get people to go away. MrVoluntarist 03:21, 24 October 2006 (UTC)

I agree that it not neutral. Any suggestions on how to improve it? --Benn Newman 16:27, 21 October 2006 (UTC)
 * Well, as it stands, it seems to be both false, and POV, so I'd like to remove it in it's entirety. However, I have seen the same argument elsewhere, so I think it's trying to convey an important idea, so I'd prefer a rewrite to a removal.  So, first I want to understand what the passage is trying to say so I can better clarify the idea it's presenting here.  It sounds like a statement of the Real bills doctrine, except that, even accepting the validity of RBD, it's applying it incorrectly.  That's why I first want to hear from someone who wrote or agreed with that passage. MrVoluntarist 20:50, 21 October 2006 (UTC)


 * The whole thing needs to be rewritten. Making it one-tenth as long wouldn't be a bad start.  Demanding references on anything added after that would be even better.  Smallbones 17:54, 29 October 2006 (UTC)

I wrote the section on physical vs. financial convertibility (sproulmike@yahoo.com). Everyone agrees about physical convertibility--one dollar can be redeemed for one ounce. Financial convertibility seems to be misunderstood. It only means that a bank stands ready to use its bonds to buy back the dollars it has issued. For example, if the Fed believes there is too much cash in the hands of the public (usually evidenced by a low federal funds rate), it will sell bonds, thus soaking up the excess dollars. The importance of financial convertibility is to correct the common misconception that if a currency is not physically convertible, it is unbacked. A currency can in fact be physically inconvertible but still backed by the bank's assets, and the more diligent the bank is in maintaining financial convertibility, the less physical convertibility matters.

This is, as you said, similar to the real bills doctrine. There is a further discussion in a UCLA working paper entitled "There's No Such Thing as Fiat Money". I forget the number, but that's why we have google.
 * Mike Sproul, you're the one I remembered from elsewhere claiming this. From what you've said, it sounds like original research.  We'll need something better than a working paper to support this.  At the very least, it needs to remove the references to bonds, which merely confuse the issue.  I can see what it's saying about the money still being "backed", but that has nothing to do with the possibility of selling bonds.
 * Anyway, I still see a difference in btw, financial and physical convertibility. Let's say a bank takes 100 silver ounces and issues 100 notes entitling the user to an ounce of silver.  You say that if the bank adds a house to its assets, worth 10,000 silver ounces (say), it can issue 10,000 more notes, without affecting the financial convertibility or value of the notes.  That's wrong.  If one day the real estate market crashed, and the house becomes worth only 5,000 silver ounces, there are notes outstanding that stake a claim to 10,100 ounces of silver, while the bank only has 5,100 silver ounces' worth of assets.  Oops.  Now how does the bank get out of this? MrVoluntarist 18:14, 16 November 2006 (UTC)

My suggestion
Okay, I'm going to take a stab at rewriting this section to say what I *think* was meant and without being POV or adding unnecessary suppositions. Here goes...


 * A distinction should be made between the differt kinds of convertibility:
 * Physical convertibility: A dollar can be redeemed at the issuing bank for a set amount of silver.
 * Financial convertibility: A dollar can be traded somewhere on the market (not necessarily the issuing bank) for assets equal in value to the dollar's quotal share of the issuing bank's assets.
 * In practice, if a bank maintains financial convertibility, no one will ever care about physical convertibility because they can already trade the dollar on the market for the same amount that a physical conversion would yield. It is possible to maintain financial convertibility without physical convertibility, which is seen in the following example: Assume a bank issues 100 dollars and maintains assets of 100 ounces of silver.  Assume then that dollar holders find that merchants demand more than one dollar for an ounce of silver.  In this case, the bank can sell its own silver at market prices until silver ounces trade for one dollar.  The fact that the bank will not, on demand, redeem notes thus does not keep the notes from maintaining a value of one ounce of silver.  In practice, this is how central banks maintain the value of their currencies, through such "open market operations".

Thoughts? MrVoluntarist 02:11, 8 December 2006 (UTC)

While banks can mantain the value of the currency with "open market operations" almost making physical convertability redundent. Requiring them to allow physcial convertability forces them not to endlessly inflate the money supply. Geoffsmith82 01:41, 15 December 2006 (UTC)
 * What does that have to do with what I posted?

Financial convertibility means that a dollar is redeemable for a dollar's worth of stuff at the issuing bank--not that it is just acceptable in the market. If the bank didn't maintain financial convertibility then the money would lose value in the market. I don't think ths rewrite is an improvement. (Preceding unsigned comment by 67.49.42.239 aka Mike Sproul)
 * Okay, first of all, and I know I should have said this before, but "a dollar is redeemable for a dollar's worth of stuff" is tautological. A dollar will always be redeemable, anywhere, for a dollar's worth of assets, because that is what it means for an asset to be worth a dollar.  And that is why I thought it meant the dollar's quotal share of assets. Second, the whole point of distinguishing financial convertibility (which you added) was that it does *not* need to be redeemable at the issuing bank on demand, in order to have value on the market. That's the whole point of the example.  Make sense. MrVoluntarist 00:10, 10 December 2006 (UTC)

If a dollar is issued by a bank in exchange for a bond worth a dollar, then if that dollar is no longer wanted by the public, that dollar can be returned to the bank in exchange for a bond worth one dollar. That dollar is financially convertible. If the dollar cannot be returned to the bank for a bond worth one dollar, then the dollar is financially inconvertible. Obviously a dollar will buy a dollar's worth of stuff on the market, but that is not what financial convertibility means. For example, if the bank wants to maintain the value of a dollar at one ounce of silver, then if it sees the value of the dollar starting to fall, it can sell a dollar's worth of bonds for paper dollars, thus soaking up the unwanted dollar and keeping the dollar equal to one ounce. Thus, by conducting ordinary open market operations, the issuing bank can make physical convertibility unnecessary. (Preceding unsigned comment by 67.49.42.239 aka Mike Sproul)
 * Do you see, though, how my complaint about the tautology affects this? The bank could publicly destroy all of its assets.  Then the dollars (we assume) are worthless. And surprise surprise, a dollar will get you nothing at the bank -- a dollar's worth of assets.  Is this what you mean by "maintaining financial convertibility"? Basically, having a recursive definition confuses the issue.MrVoluntarist 02:48, 15 December 2006 (UTC)

It is tautological to say "a dollar is worth a dollar", but not to say "a dollar is worth an ounce of silver". Saying that the bank uses financial convertibility to maintain the dollar at one ounce is equivalent to saying that the bank uses open market operations to maintain the dollar at one ounce. In conducting those open market operations, the bank is continually exchanging paper dollars for a dollar's worth of bonds, but that does not mean the value of the dollar is indeterminate; it remains at one ounce. If, as you say, the bank threw away its assets, then of course the dollar would lose its value. A dollar would be worth zero ounces, though a dollar would also still be worth a dollar. (This seems to be what GeoffSmith was getting at above.) BTW: Are you adding my name to these posts on purpose? It's no big deal, but if I were worried about my privacy it might be. I assume you go by "MrVoluntarist" because you also don't want your name displayed.
 * Okay, I think you and I are saying the same thing, but you're unnecessarily adding a lot of suppositions. The point of the example, I thought, was to show that the bank could maintain the value of its currency even if it fully suspends convertibility, and merely buys and sells at its pleasure.  I agreed with you that when the bank conducts open market operations, it is buying/selling its dollars at whatever it can get, i.e., the market price.  But since you agree with me that it's preferable to refer to "a dollar is worth an ounce of silver" as opposed to "a dollar is worth a dollar", I don't understand why you keep wanting to refer to "a dollar's worth of assets" in the definition.  If there are 100 notes and 100 ounces, and it's possible for the bank to maintain a market price of 1 note per ounce, the probper way to describe that would be to say that "the note can be traded for assets equal in value to the dollar's quotal share of the bank's assets.  (i.e., if there are a hundred dollars, each dollar's quotal share is one hundredth)  And that's why I already have in my rewrite. Further, I don't like how you suppose that the assets are bonds.  Since the bonds themselves are claims on future dollars, that adds another recursive step that makes it harder for the reader to understand what's going on. So that's why I replaced bonds with silver in the example, referred to financial convertibility as a market (rather than bank) condition, and referred to a dollar's "quotal share" of asset value, instead of being, tautologically, "worth a dollar".  Now, what part do you object to?  It seems you're in agreement.
 * As for the name issue, you identified your email address above, which suggested you were "Mike Sproul", so I though you were confortable being so named. I recommend registering.  Even if you don't, it would help the flow of discussion if you would sign with your IP address, using four tildes ( ~ ).  Thanks. MrVoluntarist 21:53, 15 December 2006 (UTC)

Real banks back their dollars with "a dollars' worth" of assets, so in the interest of realism I listed the assets partly as silver and partly as dollar-denominated bonds. The trick about dollar-denominated assets is that they present the possibility of inflationary feedback: Let's say the bank is robbed of some of its silver, and the dollars fall in value as a result. But now the dollar-denominated bonds fall too, which leads to a further fall in the value of the dollar, etc. This can be described algebraically as follows: Let E=the exchange value of the dollar (oz./$), and suppose the bank has issued 300 paper dollars, worth E oz. each, and backs those dollars with 100 oz of silver, plus bonds worth $200. Since assets must equal liabilities, we get 100+200E=300E, which yields E=1 oz./$. But if, as above, the bank is robbed of 50 oz., this becomes 50+200E=300E, or E=.5 oz./$. Note that if the bank had held 300 oz as its assets, the same loss would have yielded E=250/300.

As for bonds being denominated in future dollars, it is a simple matter to suppose that the bank holds bonds that promise $220 in 1 year. At 10% interest the bonds are worth $200 today. I know some people worry about what happens if there aren't enough dollars to pay the interest in dollars, but any rational lender would accept his interest payment in silver or something else.(Preceding unsigned comment by 67.49.42.239 aka Mike Sproul)
 * I see your point, but I still think it's confusing to list bonds as assets in the initial example like that for the reasons above related to recursion. If it's important to mention how claims on future dollars can themselves provide real backing for dollars, I recommend adding to the example I gave rather than changing it.  Once the reader understands how the silver is backing the dollars, then go on and introduce how claims on future dollars can count as assets.  It's just a matter of avoiding confusion on a notoriously confusing issue.  Also, do you have any objection to my explanation of the dollar's values as being equal to a quotal share of the bank's assets; or to saying that financial convertibility doesn't require the bank to redeem on demand? MrVoluntarist 18:53, 17 December 2006 (UTC)

Looking back at the article, it does not directly mention the "dollars' worth" problem. I'm open to suggestions, but my first reaction is that this would just take the discussion too far afield. Since, as you say, this is a notoriously confusing issue, maybe some discussion is warranted, but that's why wikipedia has this discussion page. As for the quotal share point: First, the phrase is so rarely used as to be nearly Greek to the average reader. Second, it glosses over the inflationary feedback problem. I'm fine with saying that financial convertibility doesn't require the bank to redeem (for silver) on demand. It is, however, wrong to say that financial convertibility means that a dollar can be redeemed somewhere other than the issuing bank. The defining characteristic of a financially convertible currency is that it can be redeemed for a dollar's worth of assets AT the issuing bank. Put another way: it is the issuing bank that conducts open-market operations, not the general public.


 * In the order of your responses: The article does mention the "dollars' worth" problem -- it's in the very definition of "financial convertibility" currently given that led to my complaint to begin with! Second, I don't think "quotal share" is confusing, as it can be inferred from content.  Even if not, that would mean using a different term like "dollar's proportional share", or define "quotal share" in a footnote.  I don't see how it glosses over the inflationary feedback problem -- the dollar's quotal share is exactly what your formula says the dollar's value will be. On the issue of redemption, I think it's apparent now there is a problem with the two definitions: in the first one (physical), "can be redeemed" means "can be redeemed on demand" (I know, I know, with the obvious caveats about bank hours, size of redemptions, and time waiting in line).  In the second one (financial), "can be redeemed" means "the bank can buy its dollars back at its pleasure".  And note that I didn't say the dollar can be redeemed on the market; I said the dollar can be traded on the market.  There's a reason I used those words: because I was claiming that financial convertibility simply means that the prevailing market price is such that the dollar buys on the market, something of the same value as its quotal share of the bank's assets.  But then, now you've confused me: are you saying that under your definition of financial convertibility, the bank redeems notes on demand in some form of assets?  Because that would mean US dollars are not financially convertible, because the Fed picks and chooses who may sell dollars to it.  Furthermore, it would make no sense to talk about a bank "maintaining financial convertibility" after refusing to redeem anything. MrVoluntarist 02:36, 20 December 2006 (UTC)

As long as quotal share means what the formula says, I don't have a problem with it. Normally financial convertibility is exercised at the bank's option. The bank sees the value of the dollar dropping and so it sells bonds. But two things occur to me: 1) In principle, physical convertibility could also be at the bank's option, and (2) If people borrowed money from the bank, and they chose when to pay it back, then financial convertibility is at the customer's option. You're correct that if a bank refuses financial convertibility, then the value of the dollar would drop--to the discounted present value of the expected eventual payoff--which might be zero.

wikipedia is full of comunists

Quotal share means nothing, and is easily the most confusing pair of words on this page. 'Quotal' does not appear in dictionaries, and is apparently some kind of neologistic wiki-jargon. The phrase 'open market operations', on the other hand, has a well known meaning, with respect to central (currency-issuing) banks. Open market bond sales are the mechanism by which the Fed maintains its target interest rates, by draining the financial system of excess reserves which would otherwise be lent out at lower rates. Go read a book, and stop drinking the free market koolaid. —The preceding unsigned comment was added by Special:Contributions/ (talk)

I think this article is misusing a term "dollar" in a large scale. For example: "A unit of paper or credit money (a “dollar”)" in convertibility section. 'Dollar' is NOT a unit of money, dollar is a NAME of US (and few other countries') currency unit. Article like this should use more general terms. Daddy32 —Preceding comment was added at 12:51, 21 January 2008 (UTC)

I agree with Daddy32 that when the price of something is stated, use the ratio of goods it's denominating. Also, in terms of issuing bonds to 'back' the currency - the only reason a bank would do this is because its reserve ratio is less than 100% and it uses its goodwill with customers to make up the difference. If the example is under 100% reserve, the person returning the fiat notes would just be selling his silver in return for a bond. If the bank issued notes at 1 note=1 oz silver, and issued 100, the person who didn't want 1 note would give it back, and that 1 oz silver would go back to him. Then, he could buy a bond at whatever rate for 1 oz of silver, and the bank would have to find a way to make a return higher than the yield. Under a 100% reserve system these two operations would be completely separate, which the reserve ratio could be determined by an audit. If the bank does not have physical possession of what is backing the notes, then the bank has counterfitted. The bond operation would have to back its products with something other than the reserve of the bank, because all that money is spoken for. 143.115.159.54 (talk) 17:20, 3 March 2008 (UTC)D-Unit

Synthesis tag on Credit money section
The article as a whole, and this section in particular, is massively short of citation and attribution. This section reads like a debate between opposing contributors and is a synthesis of their views. (The SYN tag usually applies to an editor drawing his own inferences from cited material. Since no citations have been provided, one could argue that it is not the best tag, but it is better than NPOV). Frankly I'm astonished that this article was awarded GA. --John Maynard Friedman 16:55, 15 August 2007 (UTC)
 * The worse problem is not lack of citations, but the fact that this section is mostly irrelevent to the article. We need a discussion of the difference between fiat money and credit money (which is given in the previous section). Basically credit money is the type issued by banks (as banknotes), and fiat money is where a governent backs the notes of a bunch of national central banks, insures their debt with the additional power of the government to collect taxes from the population by force, and declares it will accept these notes as payments of debts to the government, and all its citizens are required to do this also. However, the next section which follows is a bunch of Marxist and anti-Marxist rants about whether or not this extra layer of government guarantee is a good thing or not (Marxists, who love government, apparently think it is). But whether these things are "good" or not, or even most of the debate about whether they are "good" is outside the scope of this article. Summarize shortly and put it in the article on Marxist economic theory, or something. We don't need the whole debate. The types of money are what they are, and nothing but a pointer needs to go to other article(s) debating on the utility or "trueness" or helpfulness or goodness of each of them. [And by the way, if credit money is a giant hoax perpetrated by capitalists, then show me the Marxist or Communist State which isn't glad to get credit from the rest of the world. If they can't get it, and their fiat money is worthless (see Cuba) it's only because they have tended to be theives about investment from other countries, and now nobody trusts them. That's what happens with credit: if you're not credible, nobody trusts you.] S  B Harris 22:36, 29 October 2007 (UTC)
 * While I agree with most of your analysis, I'm surprised that you find reds under the bed. It has been my impression that the leading oponents are those who want to restore the gold standard (and who are mainly US citizens).  --John Maynard Friedman 13:21, 30 October 2007 (UTC)
 * Not at all. Read the first paragraph of this section: Both Marxian economists and Green economists view the evolution from fiat-centric to credit-centric regimes as fundamental to global capitalism, as direct imperialism and colonialism is replaced by more local intermediaries, and relations between rich and poor are defined more by debt. Neither this nor most of the rest of the section is written by anybody who is interested in the gold standard. This section is rather an argument about the relative goodness of fiat money vs. credit money (i.e., the last being a sort of representative money backed by private promise of repayment in goods and services, rather than government promise of the same). The idea being argued (advanced and refuted) is that this nasty "new" credit money is part of the global capitalist plot. How dare individuals or businesses dare to issue their own promisory notes! Unmentioned is that this was the way it was always done, before central banking. Fiat money is the later development, so credit money can hardly be said to be part of the some modern Marx-prophesied movement of the world toward global capitalism, in latter days. Credit money is old-style, not new-style, whatever you think of it.  S  B Harris 01:52, 6 November 2007 (UTC)

Liberty Dollar Section
Why is there a few lines devoted to the Liberty Dollar, with obvious bias no less. Why has it stood for so long? If a contributor really cares about the Liberty Dollar they should make a new article and include a link to that article. I am removing those lines for the moment. —Preceding unsigned comment added by 209.240.89.251 (talk) 02:38, 3 November 2007 (UTC)

Use of language
1) Try sticking to common language usage when explaining something. "Quotal", if it is a word, is very rare.  If you must use it, define it or link it.

2) Talking about '1 dollar = 1 oz silver' can be confusing in a theoretical example, because silver really has been used as a commodity. Try dumbing down the GDP/productivity guarantee to something like '50 cows and 500 sheep', so each of the 100 dollars is 'worth' 0.5 cow + 5 sheep (BTW, this neatly leads to a discussion of specie exchange rates, where 1 cow = 10 sheep) -- 72.1.212.20 21:41, 21 September 2007 (UTC)

Wording of Critiques of credit money expansion
Wouldn't this read better if written in the form of "An argument is/can be" instead of "They argue"? The way it is written now it reads as though the arguments are false. 85.165.222.180 (talk) 19:50, 19 November 2007 (UTC)
 * No, it reads as though it is their position. Wikipedia cannot be the arbiter of what is true and what is false: it can only record what specific people have said and produce the objective evidence (if any - if none, say so) for that opinion.  Readers must decide for themselves or consult an opinionated text. --John Maynard Friedman (talk) 13:51, 20 November 2007 (UTC)
 * This whole section is going to be deleted in January anyway, if none of the citations and attributions can be produced. At the moment it reads like a poor undergraduate debate. --John Maynard Friedman (talk) 13:59, 20 November 2007 (UTC)
 * It's January and no citations have been provided. Off with its head. --John Maynard Friedman (talk) 14:02, 3 January 2008 (UTC)

Expert attention
This is an important article and, as remarked above, does not do justice to the subject. The entire article needs a thorough review by an expert. --John Maynard Friedman (talk) 14:04, 7 January 2008 (UTC)

I object to the call for an "expert" as contrary to the spirit and genius of Wikipedia. Wikipedia is precisely that information source that frees users from the developed interests (biases) of experts. It also flies in the face of the "anonymity" of contributors (not in the sense that contributors can't be identified at least to their other contributions, but that totally adequate contributors can be persons who completely lack the sort of credentials apparently being called for in the notice I find attached to the top of this article. This article IS important, but it bears on anyone and everyone who uses money. God help us if the subject can't be explained by non-experts. --Joe (talk) 03:50, 16 December 2008 (UTC)

Chopped this out
I chopped the following text out of the article, it seems to be more appropriate in a general history of currency, rather than this article which focuses on fiat currency:

Historically, the names of the individual coins and the names of the unit of account were identical, e.g. a shilling was both a type of coin and a unit of account. The law would therefore recognize tender of those coins as legal satisfaction for debts denominated in that unit of account. Different-mass coins of the same metal could explicitly be recognized as being legally valued at fixed multiples of each other in their names (e.g. in the case of the crown and half-crown) or simply by reference to their legal masses (e.g. the legal mass of a florin is twice that of a shilling). A government could legislate for the minting of a system of metallic currency, including the fineness of the metal and the legal and original masses of the coins, without legislating for legal tender or legal values of the coins themselves — they can be discovered or implied by the ratios of legal masses of fine metal in each species of coin.

Coins of different metals naturally resist incorporation into a common unit of account, and therefore of a common legal tender value system. Governments have historically attempted to fix the legal values of different metallic coins to create a unified unit of account and standard of legal tender for payments large and small. Two mechanisms have been used in this connection: multi-metalism and token coinage. The former took the form of bimetallism, where both gold and silver coins were given legal values in terms of each other. e.g. gold coin was legally valued by nominal mass at 15 times silver coin. As market forces changed the actual value of gold in relation to silver, one coin would become overvalued in reference to the other. For example, suppose there were two coins, a shilling being 6 grams of fine silver, and a sovereign being 8 grams of fine gold. If the unit of account were the shilling, then the legal value of a sovereign would be 20 shillings, and a debtor could discharge a debt of 100 shillings with five sovereign coins or 100 shilling coins, at his option. Debtors will nearly always choose the cheapest way to discharge their debts, and this results in the constant threat of demonetization of a legally over-valued metal. Token coinage adopts the coins of the higher value metal as the monetary standard, and limits the lower value metal coins to fractional currency. This is done by deliberately over-valuing the legal tender value of the lower value metal coins and limiting the total amount for which they can be legal tender in any one payment. For example in 1816 the English silver currency was lightened by 6% and the limit of the legal tender of 40 shillings per payment was imposed. Such token currency is clearly fiat currency, as it is only by government fiat that the coin can be received at its legal value.

Over time multi-metallism was replaced by gold mono-metalism, via composite standards where gold coin was unlimited legal tender and silver and copper coins were lightened, limited and converted into tokens.

Bank notes as legal tender by government fiat originate from the advent of central banking. Central banks are banks of issue that are owned, sponsored or favoured by the government. Bank notes are negotiable instruments, being promissory notes issued by a bank and payable to bearer on demand. Central banks are generally favoured with monopoly rights to issue bank notes, and/or for these notes to have the status of legal tender. Alternatively, currency notes can be issued directly by the government or its non-bank agencies, and/or the government can favour selected commercial banks by making their notes legal tender (as in Hong Kong). It is important to note that paper money and fiat currency are not the same. For example, Scottish commercial banknotes act as money, but are not legal tender and therefore not fiat currency.

Aatombomb (talk) 19:27, 7 January 2008 (UTC)

Removed from Lead
The whole lead seems overloaded and much of this is addressed elsewhere in the article.

Without government demand for certain kinds of paper as legal tender, such as bank notes, only specie is unlimited legal tender. However this is not universally true, as some currencies, (notably sterling issued by Scottish banks ), are not legal tender but are accepted by longstanding confidence (Scotland technically has no note of legal tender and thus no fiat money-- see Pound Scots).

A bank of issue whose notes enjoy legal tender status by government fiat can use its own notes, making their redemption in specie optional — a matter of the 'monetary policy' of the bank in question. Historically, the institution of fiat currency has preceded and enabled the demonetisation of specie, via a monetary policy decision not to offer payment in specie at par, e.g. by suspension, devaluation or redemption in bullion or foreign currency instead. Eventually this leads to no form of payment, redemption or exchange whatsoever being offered by the issuer and a system of freely floating national currencies, none of which is "redeemable" by fixed amounts of specie or any given commodity.

Aatombomb (talk) 20:11, 7 January 2008 (UTC)


 * The suggested length for the LEAD of a reasonably long article, is 3 to 4 paragraphs, and for one of medium size as this one is, perhaps 2 paragraphs (15 kB). See WP:LEAD. You've now cut it to two sentences--too much. I'm not arguing about the direction you're going, but am simply adding that those who cut beyond the recommended amount, are under an obligation to restore those sections with fresh summary material of the rest of the article's content, in accord with policy and the manual of style. Deletion is easy; writing is hard. So please attend to both tasks if you edit, not just the one. Thanks. S  B Harris 02:36, 11 January 2008 (UTC)


 * I intend to, after the article itself takes better shape. If you would feel more comfortable putting it back in for now, please go ahead. Aatombomb (talk) 04:07, 11 January 2008 (UTC)


 * I shall wait till you're satisfied with your rewrite. Glad you intend to finish the job! S  B Harris 04:38, 11 January 2008 (UTC)


 * Thanks! I'm trying to do some research on it over the next week or so. Aatombomb (talk) 16:52, 11 January 2008 (UTC)

Emperor Norton
I'd like to add Josua A. Norton in here somewhere. He is a notable case of an individual who issued fiat money that was apparently actually accepted as currency by some residents of San Francisco.

Aatombomb (talk) 17:10, 11 January 2008 (UTC)


 * I'd say not to. While an interesting curiosity, there are so many cases of fiat currency, they should not all be included in this article.--Gregalton (talk) 17:14, 11 January 2008 (UTC)


 * On further scrutiny, it's an example of representative currency - so never mind. Aatombomb (talk) 17:24, 11 January 2008 (UTC)


 * If you're talking about the artist, the notes he makes are not even representative money, but commodity money. The value is in the money-object itself, rather like Picasso making a minimalist sketch on his napkins and signing them, to pay for a meal (which he was known to do). Some of the careful distinctions between these kinds of money (and examples of them) have been removed from this article. Er, not to be impolite, but in some cases, by YOU. S  B Harris 17:41, 11 January 2008 (UTC)
 * I wasn't talking about the artist. I didn't find the distinctions too careful, myself. I don't own the article, so please add back in anything you think I shouldn't have taken out, especially if you have more expertise on this subject. Aatombomb (talk) 17:46, 11 January 2008 (UTC)
 * Oh, you mean Joshua A. Norton. Arguably a performance artist, if you get my drift. And the bills are (and even were) taken as being worth something for their own sake (as works), not in representation of specie or anything ELSE valuable. But not actual fiat money because Norton lacked any governmental authority. Yes, I know "authority" is a tricky concept. Usually it's connected with divisions and weapons, though, and Norton didn't have any. S  B Harris 04:53, 12 January 2008 (UTC)
 * Coupons have "value" inasmuch as they are acknowledged and honoured. Norton's "currency" is no different than old trading stamps or Canadian Tire money Coloneldoctor (talk) 02:10, 22 June 2008 (UTC)ColonelDoctor

Expert wanted
Wikipedia is designed to reject and expel experts in favor of the nonsense promulgated by the administrators and bureaucrats. I'm not helping the inmates run the asylum they've built for themselves out of compressed particle board and barbed wire. —Preceding unsigned comment added by 67.101.123.88 (talk) 17:03, 23 January 2008 (UTC)
 * In some articles that is unfortunately true (and in my experience it is caused by obsessive editors, not admins) but many editors are trying to fix it - witness this article. But even experts have to cite their sources: some self-styled experts consider themselves above such petifogging details.  If you provide the citations, nobody can repel or expel you. --John Maynard Friedman (talk) 13:22, 24 January 2008 (UTC)
 * The problem is that flat currency is such a controversial concept, especially politically charged since many Americans still believe the gold reserves at Fort Knox underwrite the American dollar. The problem with experts in the field of economics is, they are as divided in opinion (depending on political affiliation) as any other group of arguing reprobates, arrogantly insisting their way is correct. What the Wikipedia needs is referee-ism to allow multiple schools of thought to be heard in the same article, even though that means it will sound like a CNN screamfest. Which, incidently, is how democracy is often characterised when it is functioning correctly.Coloneldoctor (talk) 02:15, 22 June 2008 (UTC)ColonelDoctor

My understanding is that the "fiat" requires a law, aka government mandate
The article now says that fiat money can be issued on authority of a bank, without the government having an opinion. I don't think that's right. The last is "credit money", an important concept in itself. Fiat money is a SUBSET of credit money, in which the government has become creditor(lender)-of-last-resort. In otherwords, it's the government's credit, not the bank's alone. These things should be carefully spelled out here. Fiat currency appeared in the US only during the American Civil War, in the form of greenbacks, backed by US bonds. Before that, in the period between failures of the US bank (back to Jackson) all paper currency was banknotes from state or private banks and was credit money only. S B Harris 21:13, 29 February 2008 (UTC)

Error in lead section
The lead section says: "There has never been a form of money that has retained its value as fiat money once the backing government's tax enforcement powers have waned"

Easily disproven by the counter-example of the Swiss dinar: "During this period the Swiss dinar was endorsed by no central authority or government (in fact it was a disendorsed currency) and was not redeemable by any issuing agent, or backed by any commodity. Its persistent and sustained market value derived purely from its utility as a culturally accepted medium of exchange. As such it is often cited in economic discussions about money and the origin of money's value."

Do you agree with me that this is wrong, and that we need to change the lead section? — Ksero (talk | contribs) 19:58, 17 March 2008 (UTC)


 * Is this an isolated exception that doesn't disprove the general rule? If so, then it is just a foot note that begins "Well hardly ever:".  If not, it should certainly be changed.  Either way, a bold statement like "There has never been" certainly reads as WP:OR without a citation.  So at the very least, it needs a  tag. --John Maynard Friedman (talk) 13:10, 18 March 2008 (UTC)


 * I've added a paragraph to the lead using this excellent example. The old dinar in Iraq contined to function as a perfectly good credit money, even after the government withdrew support as creditor of last resort. With a government losing power, and in fact behaving irresponsibly money-wise, an old credit money can retain buying power better than a (new) inflating fiat money. The only thing that matters, is whose credit is good. Here's a good example which can be used to show the difference. The Pound Scots is also a good example of credit money which has strong enough backing that no "fiat" is necessary. S  B Harris 21:31, 26 March 2008 (UTC)

Controversy, Flags, & The State of This Entry
I think that this has become a rather controversial topic(at least in the United States, with the elections and whatnot; esp. Ron Paul & Stances) and i just wanted to hark on the fact that the primary portion, the "bulk", of this article seems to have remained unchanged since before most, if not all of the article flags (NPOV, Expert needed, etc.) were posted. I think this is controversial(as i said) (&part of the reason this probably became flagged) and that although most of the data is unverified and isn't exactly NPOV, it IS good data and shouldn't be tossed aside carelessly. Heavily re-worded, and cited, but not thrown out. 137.49.222.44 (talk) 20:05, 7 May 2008 (UTC)


 * It can't become controversial, this issue is controversial. We should welcome the controversy, however, and work to clarify it so the truth of how flat currency affects global economies becomes better understood. Maybe people would stop blaming the Jews. —Preceding unsigned comment added by Coloneldoctor (talk • contribs) 02:27, 22 June 2008 (UTC)


 * This isn't actually controversial at all, really. Most Americans have no idea what "fiat currency" means and it isn't a part of the mainstream political debate, while economists really agree on it, by and large. Titanium Dragon (talk) 05:31, 22 June 2008 (UTC)

Currency Competition
Just as a heads up to those who edit this article regularly. I have created a separate page on currency competition, a topic that is extremely under-represented in essentially every avenue of cultural signficance. Anyone who wants to help bring this article up (and eventually to featured status) is welcome to do so.  JHMM13 (Disc) 20:17, 11 May 2008 (UTC)

The importance of fiat money as a concept
Fiat money is typically backed by the good faith of the government maintaining or backing the money supply, importantly faith that it will accept the fiat currency in payment of taxes. For example the Federal Reserve banks of the United States maintain that US currency is backed by all the goods and services in the US economy. . Hence, the credibility of the government's policy would, in theory, impact the decisions of consumers and producers in a market economy. Under this assumption, economic actors might make decisions they would otherwise not make for fear that the currency or money that they hold will change in value radically. Managing this risk could produce economic distortions: when people convert money to other forms, increasing the demand for goods to be hoarded. Economic actors might also shelter income in other, more stable currencies or charge higher interest rates.

Under a fiat money system, money ceases to be a commodity like others, and begins to have special and peculiar properties. Instead of focusing on production, investment and consumption, economic actors begin to attempt to divine the actions of government. Since actors can have foreknowledge of government actions in a way they cannot have of a market, this could lead to efforts to bribe, control or curry favor with the entities holding fiat power.

Fiat money is also closely tied to government borrowing for expenditures that do not have a clear social return, or which may have negative expectations, such as wars of conquest. Governments could pay for wars using fiat money, rather than in hard currency or specie, on the belief that the returns of war will be sufficient to pay promised notes, and that during wartime shortage and austerity, goods are not available in any case. This has seldom proven to be the case in the absence of strong inflationary controls. Instead, the usual cycle is for the value of fiat notes to trade at a significant discount to portable and stable forms of exchange, specifically those that will be tender regardless of the winning side in the conflict. A variation on this was the use of fiat occupation currency to place the burden on other areas.

Fiat money is also associated with attempts to control trade: If individuals possess notes which are not redeemable outside of the control of a government, the idea is that they will have to purchase preferentially within the boundaries of the nation, rather than importing; see Protectionism. It was David Hume who first argued that this merely leads to inflation by the quantity theory of money, even if the money is backed by specie.

Another aspect of fiat money is its relation to property rights. Many economists argue that since a government that has control over its territory can requisition, confiscate or otherwise ban the use of specie within its boundaries, or suspend promise payments — as has often happened in the past — the presence of fiat manipulation of money is seen as being a signal that a government is intent on abrogating property rights for other purposes.

The opposing view is that governments do not immediately intend to confiscate or ban the use of specie within its boundaries, nor reduce the property rights of its citizens. Instead, a government may be oblivious to the root cause of hyperinflation (excessive increase in the money supply). Worse still, a government may be aware of the cause, but choose to ignore the problem as it is not one that will come to light in its current political term.

Some political economists argue that there is no such thing as fiat money, that governments can create fiat currency, but that the amount of money is determined by the valuation of the market place, and that attempts to create fiat currency beyond the demand for money generate inflation. In the words of Keynes, “Money doesn’t matter,” meaning that control of the money supply beyond limited boundaries will be adjusted for in the marketplace; see IS/LM model.

The idea that there is no such thing as fiat money is also consistent with the real bills doctrine. In this view, all paper and credit money is backed by the assets of the entity that issued it — usually by the gold and bonds of the central bank or the tax collecting ability of the government that issued it. Since all modern central banks do in fact maintain assets as collateral against the money they issue, one has to ask why these assets are universally held if, as quantity theorists claim, they are irrelevant to the value of the central bank’s money.

I've moved the section above out of the article and into discussion here pending its clean up. One or two citation flags might be permissible but the whole section is peppered with them and in this state it does a disservice to the rest of the article.

Bear in mind that this is a controversial subject over which widely differing views are held. Wikipedia requires citation for any material that is challenged or is likely to be challenged. Your safest bet here is to assume that material that does not include a source will be challenged and hence removed.

Think about the suitability of your sources too. For example, a website that profits from trading precious metals may have vested interests and, consequently, a particular view of the subject. Such source doesn't necessarily mean it can't be referred to at all, but it should at least require further qualification.

I've left the section originally entitled "Credit-based monetary systems, where feedback mechanisms prevent Fiat money" in the main article for the moment, though its title is now shortened to simply "Feedback in credit-based monetary systems". As with the above it could also do with some references, but I haven't challenged it just now.

There are also the closing paragraphs in the "Convertibility" section. Again, I'll get to that later if someone else doesn't fix it first.

--SallyScot (talk) 20:41, 25 July 2008 (UTC)

Law definition
Do we really need the legal definition of "fiat" right at the top despite the banner with a link to wiktionary? Zain Ebrahim (talk) 17:43, 17 September 2008 (UTC)
 * No, I think we can safely move that down to a noted reference, but leave the info in the article, for those who want to see what "fiat" means legally (and not just in regard to money). S  B Harris 19:21, 17 September 2008 (UTC)

Malt Lottery Tickets
In 1697 Thomas Neale organised the "Malt Lottery" and the tickets were used as currency, even paying naval offficers salaries in them. Does anyone know anything else about this ?--Streona (talk) 20:25, 12 November 2008 (UTC)

Concepts Section Should Go
First half is unsourced blather. Second part is a summary of one not particularly notable point of view about money. The article would be better without them. --Sjsilverman (talk) 02:33, 26 November 2008 (UTC)

Geographical range of use???
I do not understand the meaning of this section/section heading. It holds no or very little information on geographical spread of fiat currency systems, but seems to imply that such systems are unnecessary or harmful. While this might be true it has very little to do with anything geographical. As I understand it most countries in the world has adapted fiat currency as legal tender. A map or a list of these countries might be both informative and useful. Do any one have a source for worldwide monetary system types? --Thorseth (talk) 12:07, 16 December 2008 (UTC)
 * It might be a lot easier to make a list of countries that don't use fiat currency! I for one don't know of any.  (Sudan and Zimbabwe come close: formally both have fiat currencies but their currencies are not trusted and are thus useless as money.  Barter has returned as the norm.) --John Maynard Friedman (talk) 20:33, 30 December 2008 (UTC)


 * I have tried to make a more relevant section, but I am not confident enough to make the edit:

Geographical range of use

Fiat money is used as the main system of payment by almost every government on earth. Given that the system must be backed by a government, the fiat money will normally lose it's value if no functioning government is in place to guarantee the ascribed value. However this is not always the case, the so-called Swiss dinar continued to retain value as a type of credit money in Kurdish Iraq, as a result of backing by private banks and acceptance from individuals there, even after its fiat-money status was officially completely withdrawn by the backing government (the central government of Iraq).

In areas where no government is present, such as failed states, or where government policies have caused hyperinflation the official monetary system is often abandoned and barter or foreign currencies are used.

A large economy may function on credit money which is not fiat money, such as United States paper currency during periods prior to 1913.

A mixed case where a credit money note is only partly backed by the full credit of the government involves Banknotes of the pound sterling. Although only those pound sterling notes issued by the Bank of England are directly backed by government credit and thus technically "legal tender," the pound sterling banknotes issued by certain other authorized banks in the U.K. still function equally as money in the U.K. This is because there is an indirect mechanism of government backing where these other banks are required by law to have a sum of money in an account in the Bank of England equal to the total sum of sterling notes they have issued.


 * Suggestions are welcome--Thorseth (talk) 14:34, 5 January 2009 (UTC)

Who is Micheal Sproul?
Yes, I can see from the citation that he is an academic/economist at the University of California, but can we do better than that? We don't tend to cite individuals by name unless they are personally notable - a good guide is "is their an article about them"? In this case there isn't. So unless such can be written, the text needs to change to say "Some academic enconomists argue ..." --John Maynard Friedman (talk) 20:29, 30 December 2008 (UTC)
 * I've squared the circle by linking to his bio page at the CSU@N web site. --John Maynard Friedman (talk) 20:44, 13 January 2009 (UTC)
 * I don't see that either Sproul or his theory are notable. Is he cited anywhere?  If there is no evidence of notability, I will remove this material. - Crosbiesmith (talk) 19:59, 8 March 2009 (UTC)

This needs a rich advantages/disadvantages section
since it's in fashion nowadays for conspiracy theories (especially because of 'Zeitgeist') to trasmit the idea that fiat currency is 'teh evil.  f s  20:15, 8 January 2009 (UTC)
 * That brings a high risk of editorialising, which has continually plagued this article. Any proposed text needs to be heavily cited and preferrably test-driven here at talk: first. --John Maynard Friedman (talk) 22:20, 8 January 2009 (UTC)

Criticism is appropriate.

Fiat currency is criticized for creating inflation. Michael H 34 (talk) 23:04, 14 January 2009 (UTC) Michael H 34
 * By whom? In this case, it is one G. Edward Griffin who appears to have no expertise on this or any other subject he cares to pronounce upon.  I'd welcome comment from others but in my view he is not a notable person in this context, such that his opinion has any merit. I think it should be deleted.--John Maynard Friedman (talk) 01:50, 16 January 2009 (UTC)
 * He is notable because his book is a best seller. Michael H 34 (talk) 00:22, 22 January 2009 (UTC) Michael H 34
 * But he is a pseudo-ecomomist, a complete amateur who starts from a conclusion and then searches for selective evidence to support it. His opinion is worthless. But nevertheless, the citation should stand becuase it makes clear that no serious economist supports such primitive views. --John Maynard Friedman (talk) 20:18, 26 January 2009 (UTC)


 * I restored the criticism of G. Edward Griffin because it is notable and reliable. Michael H 34 (talk) 22:50, 27 January 2009 (UTC) Michael H 34

I have no idea why, but Mr. Friedman has recently left a comment on my user talk page saying that I was biased in my edit. I have clear knowledge of the topic as a writer, speaker and investor and merely added well referenced historical facts regarding the figures who have criticized fiat money. That my expertise in this field somehow disqualifies me is laughable. --Prestonp (talk) 01:54, 22 January 2009 (UTC)
 * What I said was that, since you have a financial interest in this subject, you need to be aware (as does everyone) of WP:Conflict of interest, and therefore that you need to be scrupulous in observing WP:NPOV. I went to your page to comment on the way that you had nuked a citation, only to find that someone else had already done so. --John Maynard Friedman (talk) 20:18, 26 January 2009 (UTC)

Is there any modern currency which is not a Fiat Currency?
AFAIK, no currencies today are on a gold standard, or other standard, where I can go in to the bank and swop the notes for gold, silver or some there valuable commodity. Even currencies which a pegged, are all ultimately pegged to somebody else's Fiat Currency. Can anybody comment? TiffaF (talk) 09:28, 26 January 2009 (UTC)
 * Are there any shell money economies still in existence? Otherwise I suspect that you are right. --John Maynard Friedman (talk) 20:20, 26 January 2009 (UTC)
 * Then perhaps it should be made clear in the article. At present it reads as if it is one of many types of money, e.g. "Fiat money is not necessary for large countries" TiffaF (talk) 13:14, 27 January 2009 (UTC)
 * There exist national moneys are that NOT fiat money. And some banknotes are not fiat currency-- they are simply a form of credit money from the bank. An example of both cases is the Pound Scots which functions as money in Scotland, a country which indeed has no fiat currency (currency officially declared legal tender by the government) at all. Just because a note is not representative money (backed by specie or a very specific aount of some good), does NOT mean it's fiat money. A simple note of credit on the bank (a banknote) can be redeemed for anything else the bank owns. For example, if the bank owns a house from a mortgage foreclosure from failure to pay, then the bank will be perfectly willing to give you the house in exchange for its banknotes. Thus, they are (in effect) backed by the houses the bank owns, and so on. It's not gold-backed money, but it's still a goods-backed money. So it's a sort of representative money, except what it represents is not specified. A certain claim on the bank's assets as they are a generic, is what it is. S  B Harris 23:52, 8 February 2009 (UTC)


 * The nature of money. All money is decreed money...fiat... whether of silver, gold, paper, barley or shells or houses etc. It is based on contracts and law. In other words civil society constructs... mainly coming from the Sumer area originally in the period when writing was first invented... then spreading into Europe though Greek and Italian city states from the Phoenicians much later http://phoenicia.org/interest.html - skip sievert (talk) 02:58, 5 March 2009 (UTC)

Citing sources in the "criticism" section.
May I draw editors attention to Fringe theories. Where the works of people who have no experise in the subject are cited, it is important in complying with WP:NPOV to make that clear. --John Maynard Friedman (talk) 00:06, 4 February 2009 (UTC)

Why is expertise in economic theory a relevant characteristic for providing criticism in this article? Are you suggesting that there is something in the criticism attributed to Griffin that should be labeled as fringe theory? Michael H 34 (talk) 15:32, 4 February 2009 (UTC) Michael H 34


 * Yes, Griffin is a complete amateur and his comments deserve the same citation value as we give to comments by pseudo-scientists on real science. I take Greenspan more seriously but that was a very long time ago and today it is incredible that every economy work on specie.  The Specie Circular shows exactly what can happen when there is insufficient gold to support economic activity - a shortage of a specific and otherwise non-essential commodity brings the economy to a halt and you get events like the Panic of 1837. --John Maynard Friedman (talk) 21:41, 8 February 2009 (UTC)

Jerome Daly
This site is nonsense. It claims that the case was never legally be overturned, nor can it be. Well, the Supreme Court of Minnesota thought differently, and held the attorney Jerome Daly in contempt for ignoring a superior court's order staying the absurd ruling from this Justice of Peace Mahoney (who was not even a licensed attorney):


 * "Although the stay order of Justice Peterson was served on the justice of the peace and Mr. Daly on July 11, 1969, they intentionally and deliberately disregarded it in this way: On July 14, 1969, the justice of the peace, upon motion of Mr. Daly, entered findings of fact, conclusions of law, and an order for judgment in favor of Zurn. In response to our order of August 12, 1969, directing the justice of the peace and Mr. Daly to show cause why they should not be held in constructive contempt of the Supreme Court of Minnesota for this conduct, Mr. Daly appeared personally in his own behalf before this court on August 21. He advised the court that he had been authorized to represent the justice of the peace in the proceedings. After noting that he was making a special appearance, Mr. Daly, an attorney at law admitted to practice in this state, acknowledged that both he and the justice of the peace intentionally violated the order of Justice Peterson because in their opinion neither this court nor Justice Peterson had jurisdiction to issue it.
 * "Although the death of the justice of the peace on August 22, 1969, has rendered the proceedings as against him moot, it is our judgment that the conduct of Jerome Daly was contumacious. It is the order of this court that he be temporarily suspended from the practice of law in the courts of this state effective October 1, 1969.
 * "(6) We are satisfied from the record that the justice of the peace acted upon the advice and at the instance of attorney Jerome Daly. Mr. Mahoney was not admitted to practice as a lawyer. An attorney who intentionally and deliberately advises and encourages a justice of the peace or any other person to disregard an order of the Minnesota Supreme Court is guilty of contempt." In re Daly, 284 Minn. 567 (Minn. 1969).
 * "(6) We are satisfied from the record that the justice of the peace acted upon the advice and at the instance of attorney Jerome Daly. Mr. Mahoney was not admitted to practice as a lawyer. An attorney who intentionally and deliberately advises and encourages a justice of the peace or any other person to disregard an order of the Minnesota Supreme Court is guilty of contempt." In re Daly, 284 Minn. 567 (Minn. 1969).

Don't re-add this case. Cool Hand Luke 21:19, 13 February 2009 (UTC)
 * Yes, they reprimanded Mr. Daly in any way they could, but they could not overturn the original ruling on its own ground. I will re-add the case. --Campoftheamericas (talk) 05:08, 14 February 2009 (UTC)
 * Wrong. They clearly say In re Daly the original ruling was beyond the jurisdiction for a justice of the peace in Scott County Minnesota. They vacated the decision (that is, it never legally took force):
 * "Applications for a writ of prohibition in the above-entitled, consolidated matters instituted before Martin V. Mahoney, justice of the peace of Credit River Township, Scott County, Minnesota. The death of Mr. Mahoney on August 22, 1969, makes these proceedings moot as to him. However, to avoid the necessity of further proceedings to vacate and set aside any action taken herein by Mr. Mahoney prior to his death, (see 42 Am.Jur., Prohibition, s 47) we declare all proceedings in this matter before the justice of the peace a nullity upon the jurisdictional grounds set forth in In re Daly, Minn., 171 N.W.2d 818." See Zurn v. Northwestern Nat. Bank of Minneapolis, 284 Minn. 573, 170 N.W.2d 600 (Minn. 1969).
 * Mr. Daly insisted that the late Mr. Mahoney had jurisdiction and that the Supreme Court of Minnesota did not. Because the Supreme Court of Minnesota is the final word on Minnesota law, Daly was simply wrong. In 1971 he was fully disbarred by the state supreme court. A Federal Judge in the Southern District of California found that citing to this case was legally frivolous. See Sneed v. Chase Home Finance LLC, 2007 WL 1851674. (S.D.Cal. 2007) Cool Hand Luke 16:56, 14 February 2009 (UTC)
 * I concede on this case, but I do not think the bank had any more right to the property than Daly's client. I think the Federal Reserve and a fiat currency does not serve the public well, for the reasons cited in the criticism sections.  I also think that you are more than one person, since you manage to alter my changes a little over an hour after I make them, no matter what time I make them at.  —Preceding unsigned comment added by Campoftheamericas (talk • contribs) 07:00, 15 February 2009 (UTC)

For what it's worth, this same Jerome Daly had other, more serious problems as well. See United States v. Daly, 481 F.2d 28, 73-2 U.S. Tax Cas. (CCH) paragr. 9574 (8th Cir.) (per curiam), ''cert. denied'', 414 U.S. 1064, 94 S. Ct. 571 (1973). Daly was convicted of willfully failing to file federal income tax returns for the years 1967 and 1968. In rejecting his appeal, the United States Court of Appeals for the Eighth Circuit noted: "Defendant's fourth contention involves his seemingly incessant attack against the federal reserve and monetary system of the United States. His apparent thesis is that the only 'Legal Tender Dollars' are those which contain a mixture of gold and silver and that only those dollars may be constitutionally taxed. This contention is clearly frivolous." Id. Regarding Daly's disbarment in Minnesota, see also In re Daly, 291 Minn. 488, 189 N.W.2d 176 (1971) (per curiam). Famspear (talk) 21:32, 15 February 2009 (UTC)

Logical fallacy in the "criticism" section should be removed.
The last sentence in the following excerpt from the "criticism" section should be removed. The Austrian School of Economics has long held that no sound economy can long endure under fiat money, with prominent Austrian Economist Ludwig von Mises arguing in this book Human Action that, "What is needed for a sound expansion of production is additional capital goods, not money or fiduciary media. The credit boom is built on the sands of banknotes and deposits. It must collapse." However, the Austrian School is outside the mainstream of contemporary economics.[14] The last sentence above creates the logical fallacy of argumentum ad populum (Latin: "appeal to the people"), in logic, is a fallacious argument that concludes a proposition to be true because many or all people believe it; it alleges that "If many believe so, it is so." The criticism is stated, and then the second sentence characterizes the criticism as a minority view, which engages in the fallacy just listed. This is the "criticism" section, not the "criticism of the criticism" section. The language is also biased. If the criticism of the criticism should stand in this section, the cliche "outside the mainstream", which has a negative connotation, should be re-worded to eliminate bias. I've looked through Wikipedia articles with "criticism" sections, and I cannot find a similar biasedly written criticism of a criticism. You certainly won't find it on the entries "Capitalism" or "Marxism". It should not be here.76.105.195.53 (talk) 01:54, 5 March 2009 (UTC) Also, the reference for the second sentence links to the opinion paper written by one assistant professor. This is an opinion paper, not a scientific study. The assistant professor even states his bias in his opinion paper: Needless to say, I have many friends who think more highly of Austrian economics than I do. One person's opinion does not an idea outside of the mainstream make.76.105.195.53 (talk) 02:01, 5 March 2009 (UTC)

Orgin of term
If anyone could cast light on the orgin of the term 'Fiat money' that would be a great addition. Using the Google archive search, the term appears to have popped into existence in 1878. - Crosbiesmith (talk) 18:25, 8 March 2009 (UTC)

Concepts
About two thirds of this section is totally unreferenced. The remainder appears to be the unpublished theory of Michael Sproul. I will remove this material if sources are not available. - Crosbiesmith (talk) 21:03, 9 March 2009 (UTC)


 * Re Sproul & "There's No Such Thing As Fiat Money", rather than dismissing this on the grounds of its source not being notable enough, it would be interesting to hear some objection to the argument itself - e.g. if it were felt to be a bit loopy or fringe. What I like about the idea of it remaining in the article is that this would perhaps invite some further counterpoint. And that, on the whole, would help my understanding. --SallyScot (talk) 00:03, 10 March 2009 (UTC)


 * I don't think it's loopy. However, Wikipedia's criteria for inclusion are notability and verifiability.   Any editorial commentary on the article would be original research.  If published third-party criticism of the paper exists, by all means add it.  As I don't see any evidence of Sproul's notability, I will remove this material in due course. - Crosbiesmith (talk) 22:19, 16 March 2009 (UTC)


 * Perhaps the article, rather than mentioning Sproul by name, could be reworded simply to suggest that there is an argument or a view to the same effect, i.e. that there's no such thing as fiat currency (etc). Arguably, Sproul isn't notable enough to warrant mention by name, but I don't think this merits dismissal of the point altogether. Wikipedia's criteria of notability and verifiability are really two different things. Notability is a prerequisite criteria for articles themselves, i.e. ensuring that the subject is sufficiently noteworthy to merit a Wikipedia entry. It doesn't follow that an article's supporting references all need to be from sources noteworthy enough to each in turn have their own Wikipedia article. --SallyScot (talk) 19:56, 17 March 2009 (UTC)
 * As I say above, I don't see that either Sproul or his theory are notable. If this theory is published somewhere other than Sproul's website we can evaluate that as evidence of notability.  The self-published working paper is not evidence of notability.   Verifiability is not an issue; the fact that a theory exists does not require verification. - Crosbiesmith (talk) 20:55, 17 March 2009 (UTC)
 * Removed the first two completely unsourced paragraphs as there has been no comment. - Crosbiesmith (talk) 21:46, 18 March 2009 (UTC)
 * Removed not-notable, self-published Sproul theory. - Crosbiesmith (talk) 19:26, 28 March 2009 (UTC)

Fiat money and the concept of legal tender
The section 'Fiat money and the concept of legal tender' makes no mention of fiat money. All the material in it concerns legal tender. There is no attempt to link the two concepts. I will delete this section in due course. - Crosbiesmith (talk) 07:47, 21 March 2009 (UTC)
 * It's a little easier just to add the connection. I'll try it. S  B Harris 05:41, 22 March 2009 (UTC)
 * Thanks. - Crosbiesmith (talk) 08:47, 22 March 2009 (UTC)
 * Still, that section is almost completely about legal tender rather than fiat money. It should in the legal tender article unless it is there or already.  I will move it or remove it from this article. - Crosbiesmith (talk) 08:08, 4 April 2009 (UTC)

Article title: Fiat money

 * The following discussion is an archived discussion of the proposal. Please do not modify it. Subsequent comments should be made in a new section on the talk page. No further edits should be made to this section. 

The result of the proposal was PAGE MOVED per discussion below. The history was broken, actually, from a cut-and-paste move from Fiat money to Fiat currency in December '05. The history is patched back together now. If there's anything I missed, please let me know. Oh... I suppose I should move this talk page, too. -GTBacchus(talk) 03:19, 27 March 2009 (UTC) I have requested a page move from fiat currency to fiat money. 'Fiat money' is the more commonly used term. This title would also be consistent with the credit money and commodity money articles. - Crosbiesmith (talk) 15:23, 21 March 2009 (UTC)


 * Sounds like a good idea. skip sievert (talk) 15:27, 21 March 2009 (UTC)


 * It does sound like a good idea. In my experience, the term "fiat money" is common in actual usage; in any case, the concept refers to the total supply of some money rather than the denominated units of it, so the distinction is correct. — Gavia immer (talk) 16:55, 21 March 2009 (UTC)


 * Makes sense to me. --JBC3 (talk) 05:50, 22 March 2009 (UTC)


 * To me as well. S  B Harris 05:51, 22 March 2009 (UTC)
 * The above discussion is preserved as an archive of the proposal. Please do not modify it. Subsequent comments should be made in a new section on this talk page. No further edits should be made to this section.

Thanks, GTBacchus. Nice job on the patch up and move. It's not perfect but it continues to improve. S B Harris 03:23, 27 March 2009 (UTC)

general problems with article
WP articles should not be so technical as to be unintelligible to the Average Reader, nor should they be subtly biased so as to support one school of thought over another school.

I think this article falls on its face in both respects. One is easier to see than the other, though. There is much detailed analysis about the history of various sorts of money (fiat money, credit money, specie money, tax backed money, ...), but the effect, as with so much economic writing is more fog than clarity. WP articles should be better written and more understandable than that. Even in a field as bestrewn with arcane experts and expertise, much of it mutually exclusionary. Someone who understand the field and its jargon and who can write clearly is badly needed.

ON the second point, there is a sense (to this reader at least) that the underlying approach of the article is discussion of a dodgy business, this fiat money. One which is fraught with problems and fraud. Regrettably, this leaves unsaid that currency manipulation is known to have predated by a long time the invention of fiat money by the Chinese (if it was they who did so -- the article is not clear on that point just now -- a poor writing issue). Currency debasement was an issue early on in Anatolia if some of the Greek sources I dimly remember can be trusted, and it was certainly so recurrently throughout the history that we have not lost. A better account then would start with the clear statement that no fully satisfactory practical method of managing currency (and so a money supply. Indeed there is no mention here of the concept of a money supply and the necessity of some rough parity between the size of an economy and the size of its money supply).

All methods tried to date have had considerable troubles in actual practice. Layered on top of this patchy and dodgy experience is a bramble patch of theoretical analysis schools, each declaiming with solemn authority (backed by abstruse and exhaustive (well certainly exhausting) analysis) which purports to show, from first principles in each case, that this or that way of managing currency is the only sensible one. Thet they are mutually exclusive in most respects, seems not to affect the importance accorded to the economists and analysts who intone solemnly and portentously. Practical operators, who are devoted to one or another school, predictably those which benefit their interests, have demonstrated that they are unable to operate sensibly in practical applications, much less theoretical analysis.

If both practical (however implicitly including some theoretical perspective) and formally theoretical approaches are dubious as ways of judging this or that approach to currency structure, this should be reflected in this article and its parallel articles. It is not. And all this is the other hurdle this article trips over and so fails to reach any sort of satisfactory finish line.

Not being in the field, nor a sufficiently extraordinary writer, I can't myself fix this. Some editor surely is in a postion to do so. Please, take a whack at it. I don't think it can be really a lot worse, so the downside risk is low.

Anyone? ww (talk) 01:09, 25 March 2009 (UTC)
 * The contributors watching this article are likely to be the contributors who got the article to its current state and who are doing their best, or have already done their best. Why not find an article you do like on an economics topic and request assistance there? - Crosbiesmith (talk) 19:16, 25 March 2009 (UTC)


 * I've added a bit to the opening paragraph. A fiat money, as a legal tender for all debts, is basically backed by any good or service in the country's economy which is for sale, and incurs a debt. All moneys need "backing", and "fiat money" is simply money which is backed by anything in the economy which is bought or sold. Including specie. What's the difficulty in understanding that? Whether it's a good idea is something else again, but in practice it works as well as anything else. It seems a bit silly to have the entirely world economy backed by "gold" or something, since what can you do with gold? Didn't you ever see that great Serling Twilight Zone where the robbers make off with gold bars and wind up (after cryogenic suspension) in a desert of the future where they have all the gold they can carry, but little water? This causes the "value" of gold to fluctuate wildly. Then we find out that gold in the future is worthless anyway, since it can be synthesized? It's a nice little exercise. S  B Harris 03:41, 27 March 2009 (UTC)
 * Saying it's backed by "any good..." is not true. If you accept paper money today, who is to say what you will receive for it tomorrow ? Just ask Eddie Cross who contributed 40 odd years to a pension fund and when he received the cheque it wasn't enough to fill up his car. In the case of Zimbabwe the central bank was not independent. Even if the central bank is independent, the currency can still loose significant purchasing power (even after interest income) because the central bank will not have the access to the correct financial instruments to hedge against inflation. -- Nic Roets (talk) 23:39, 27 March 2009 (UTC)
 * That's the central bank's fault, then! Adjusting the money supply so that it tracks the amount of goods and services in a economy is not rocket science: see core inflation and consumer price index. If goverments refuse to do this, out of greed or corruption, then there are bad consequences. But requiring some odd money standard to keep politicians from printing money to buy votes with, is not the answer. In practice, corrupt systems find a way around this, no matter what. Historically, the gold standard has had problems even when governments were honest, as the world gold supply sometimes did not keep up with the expansion of the economy and need for money (resulting in deflation and historically the adoption of bimetalism). And in theory the opposite could happen if vast new gold deposits were discovered, or if people lost confidence in gold because it cannot be eaten or lived in. All in all, it's better to trade goods for goods, with no intermediate metal "standard." But since barter is not very convenient, it's often better to keep track with paper. To keep that from being counterfeited, you may make some of it "official." And there you have fiat money. But please remember that fiat money is not the only money, even in societies that have it. Every time you write an IOU or originate a loan, you create a "money." If you buy and sell loans (see various kinds of "credit derivatives"), you're printing your own money. The colapse of modern financial systems is not due to misuse of fiat money, but due to misuse of other instruments as tradable "money" when their backing (AAA ratings, etc.) was far shakier than anything done by "fiat" via the federal reserve system. S  B Harris 23:38, 28 March 2009 (UTC)
 * Targeting money supply in an open economy is extremely difficult ! Loans denominated in foreign currencies, effects of derivatives etc. Inflation targeting is a bit easier, but the BoE, the SARB and a few others missed their targets recently, despite employing "rocket scientists". Central banks have also made mistakes in the past by e.g. believing in the Phillips curve and not because they were corrupt!. I do agree with you that fiat money is generally a good thing, but words like "generally" and "basically" should be used sparingly in wikipedia. -- Nic Roets (talk) 16:27, 29 March 2009 (UTC)

Backing
User:Ivanleo removed the following statement from the text - 'Federal Reserve Notes receive no backing by anything.' The statement was taken from the Treasury Department web-page FAQs: Currency - Legal Tender Status. I added this statement to the lead. The reason I did so was because this same page was used to support the statement 'In another sense however, they are "backed" by all the goods and services in the United States economy'. To use the source to support the second statement without mentioning the first would be to quote the source selectively. If this source is used, both statements need to be given. Furthermore, as the article stands, the words 'in another sense' make no sense in the absence of the first statement. As the first statement has been removed, I will also remove the second. - Crosbiesmith (talk) 17:11, 14 April 2009 (UTC)

Fiat money in monetary economics
User:Monoecus added the following today: In monetary economics, fiat money is an intrinsically useless good used as a means of payment and a storable object. Whereas cash-in-advance models of money assume the usage of fiat money to trade goods, fiat money arises endogenously in many micro-founded models of money as it makes some trades feasible that would not be feasible without it (because agents cannot write  IOUs due to anonymity or physical constraints for example).

This is not an easy passage to understand. Monoecus, or others, would it possible to elaborate on the meaning of the following terms please?: I understand that endogenously means 'within', more or less, but I don't understand what it is that fiat money is endogenous to here. Thanks - Crosbiesmith (talk) 18:32, 17 April 2009 (UTC)
 * an intrinsically useless good
 * a storable object
 * endogenously


 * It probably defies understanding in any way other than subjective opinion splicing of different concepts into a threaded cord of O.R. - Probably better to delete it from the page... as the meaning, if any, is so arcane as to be worthless...(my opinion)- skip sievert (talk) 22:21, 17 April 2009 (UTC)
 * I understand now that 'arises endogenously' means that fiat money arises in the model, rather than being imposed on the model as a pre-condition. I don't see the point of the clause 'Whereas cash-in-advance models of money assume the usage of fiat money to trade goods'.   As I understand it, a 'cash-in-advance model' imposes the existence of money on the model as a precondition, so the clause is redundant.  I will remove it.  Any elaboration on the other terms used in this passage would still be useful.  Also, are the words 'it makes some trades feasible that would not be feasible without it' supported by any of the sources given here?  It is not clear.  I will add a citiation tag to that part until this is clarified.
 * Having looked at the sources again, I realise this material relates specifically to restricted mathematical modelling. It is unlikely to be of interest to the general reader.  It does not belong in an overview of the subject.  It does not belong in the lead.  Because it is so hard to understand it is likely to confuse and turn off most readers.  I will move this from the lead. - Crosbiesmith (talk) 09:05, 18 April 2009 (UTC)


 * arises endogenously' means that fiat money arises in the model, rather than being imposed on the model as a pre-condition.... not sure about this either. It pre- supposes that 'money' is natural..?. or aspects of money arise like a physics question and answer? It still may not make literal sense, but may be a poetic o.r. of money theory. Maybe it can be meant to make sense... but seems like a real stretch. I think it probably could also be removed. skip sievert (talk) 20:44, 18 April 2009 (UTC)
 * Skip, I removed your addition of 'It is claimed' - see the list of examples in  Avoid weasel words. Either the claim is not well sourced, and should be removed, or it is well sourced and does not require a disclaimer - Crosbiesmith (talk) 10:13, 19 April 2009 (UTC)


 * Sure. It is claimed though by the citation/note. Do I think it is actually 'true'. No. Much of money conjecture is only that. If you believe the premise the rest is easy. The premise being an abstract concept. I suppose since the whole thing is fact tagged, and it is a stretch to say the ref notes are really connected... if it is not sourced... at some point, the whole thing can be removed. Thanks. skip sievert (talk) 13:23, 19 April 2009 (UTC)

Hi guy's. Just discovered the Discussion here. Let me elaborate a bit. Fiat money is a very important concept in monetary theory, i.e. the economic theory of explaining why money (especially fiat money) exist. Fiat money in this sense is important to be fiat as it stands in contrast to capital for example which has a certain consumption/production value. Hence, this was a first paragraph to put in. There should be of course much more about it. I honestly disagree with some of the comments above that this is a topic to be left out of wikipedia. Monetary theory is a very big and important field and fiat money takes a big stake here. So, this belongs definitely into this article. I will try to make up some more interesting references. As there are certainly more than thousand research articles using the term fiat money, that is a big big thing which was completely missing in the previous article. So, watch out for more. If you have questions, I will come back to this discussion. Cheers. Monoecus —Preceding unsigned comment added by Monoecus (talk • contribs) 05:12, 21 April 2009 (UTC)

Regarding the endogeneity, that is a very important point to be mentioned. Fiat money in certain models are imposed by assumption (i.e. cash in advance models) or arise because agents want (!) to use money to maximize their utility. I will elaborate on this better, as soon as I have time. —Preceding unsigned comment added by Monoecus (talk • contribs) 05:15, 21 April 2009 (UTC)

Swiss dinar - sources
User:Sbharris - in the section 'Value when a fiat money loses backing' you have added the source Economic Policy and Prospects in Iraq. This article does not mention fiat money. It does not discuss backing by private banks or acceptance by individuals. It does not support the claims made in the section. - Crosbiesmith (talk) 20:26, 17 April 2009 (UTC)
 * It seems both Mervyn King and Hal Varian have discussed this. Their comments are linked from this blog entry: .  Perhaps these would be useful sources on the Swiss Dinar? - Crosbiesmith (talk) 20:38, 17 April 2009 (UTC)
 * The Foote article: Foote, Christopher; et. al., 2004 (Summer), "Economic Policy and Prospects in Iraq", The Journal of Economic Perspectives 18 (3): 47-70" Does discuss these issues. That was the reference that was supposed to be used here, and the one that IS used in the Swiss Dinar article to back this history. I've added it.  S  B Harris 02:21, 18 April 2009 (UTC)
 * Is this article, Economic Policy and Prospects in Iraq, as available online, your source? This version of the article does not support the claims made in the section. - Crosbiesmith (talk) 07:18, 18 April 2009 (UTC)

Alan Greenspan
I have questions about, "Alan Greenspan, Federal Reserve Chairman from 1987 to 2006, was an early critic of fiat money arguing in his essay, Gold and Economic Freedom, that . . ." Since fiat money has been around and controversial for a long time, how could he have been an early critic? Was this wording meant to convey "early in his career. . ." or something else? Also, isn't a comma needed before "arguing," or am I reading the sentence wrong? 68.83.72.162 (talk) 18:45, 26 September 2009 (UTC)

Value when fiat money loses backing
This section claims that a 'strong private banking system and consensus of the population' may support the value of a fiat currency. This appears to be original research. Unless a reliable source can be found for this claim I will remove it. I have checked the provided sources - they do not support this claim. They demonstrate that the Swiss Dinar continued in use despite its loss of backing by the original government. They do not explain why it continued in use. - Crosbiesmith (talk) 20:04, 31 October 2009 (UTC)
 * Yes. You can remove it. But even after you do, this article will encourage readers to jump to conclusions:


 * 1) Readers may conclude that Fiat money work because of the history and the Brenton-Woods system. Except it collapsed !
 * 2) Readers may conclude that Fiat money work because the government specifies that debt can be paid with it. Many people (agents) who work with Fiat money are very far removed from this law and not nearly enough rigorous arguments are presented to build a bridge between them. Furthermore most countries allows most loan contracts to be written in terms of any other asset, say corn or equities.
 * 3) Readers may conclude that Fiat money work because of it can pay tax with it. A lot of Fiat money is being held by people saving for retirement who either do not know how much tax they will have to pay or they know that they will have to pay very little tax. Again that bridge is missing.
 * I do have a theory that I think is much better, but as I admitted earlier on this page, it has not been reviewed. -- Nic Roets (talk) 23:09, 31 October 2009 (UTC)


 * I also support removal. The consequences are, like much of Wikipedia [economics] articles, are that readers have to find a textbook that explains the issue in far more detail than a one-page summary can provide. --John Maynard Friedman (talk) 21:26, 5 November 2009 (UTC)
 * Done. I've left the statement that this happens, but removed the claim as to why. - Crosbiesmith (talk) 19:17, 17 November 2009 (UTC)

The purchasing Power of a Fiat Currency
Determining what the purchasing power of a fiat currency will be, seems an ill explored area in economics. The only theory I have come across in my research of this area is Ludvig Von Mises' Regression theorem. I think that some mention should be made of this work and or rival theories (if they exist).Reissgo (talk) 23:38, 8 November 2009 (UTC)
 * Please write a short paragraph. If you can find only one item in the literature, then it can't be given more than a couple of sentences.  If it is your field, you might want to review WP:OR before beginning. --John Maynard Friedman (talk) 20:44, 9 November 2009 (UTC)
 * Ok, done. I know my reference is not in the right format - I wonder if someone could correct that for me, I'm not sure how it works.78.143.205.244 (talk) 08:56, 10 November 2009 (UTC)
 * Done - and thank you for the material. For future reference you could (a) copy an existing citation and change the details or [well, AND, really], read WP:Citing sources.  Now all we need is an article about Ludvig Von Mises! --John Maynard Friedman (talk) 11:41, 10 November 2009 (UTC)
 * Oops! Its Ludwig, not Ludvig. - now fixed.Reissgo (talk) 13:12, 10 November 2009 (UTC)

'beliefs from the economic actors"
A user at 85.24.170.53 added the claim "It derives the value it has from the beliefs from the economic actors." This seems to be based on the blog post Gold - a six thousand year-old bubble, though this is not made explicit. A blog-post is not a suitable reference for such a claim. I have tagged it as unsourced. - Crosbiesmith (talk) 19:08, 17 November 2009 (UTC)
 * The question is to find "The purchasing Power of a Fiat Currency". The question is not "Why does the currency have any purchasing power at all". I think Willem Buiter's theory should be removed altogether from this section.Reissgo (talk) 20:52, 18 November 2009 (UTC)
 * I don't follow? Willem Buiter doesn't appear in the article as it stands? --John Maynard Friedman (talk) 15:53, 23 November 2009 (UTC)
 * Ah, I see - he is the blogger. Ok, I agree, when he publishes under his onw name, we can include it. --John Maynard Friedman (talk) 15:55, 23 November 2009 (UTC)
 * The claim has now been referenced to the paper Money and Prices: A Model of Search and Bargaining by Shouyong Shi. This paper describes a mathematical model of a money economy under certain assumptions and deduces certain properties of that model.  No attempt is made in the papers to validate the model against a real economy.  A key assumption is that 'a money holder spends all her money in each trade'.  This paper does not demonstrate the fiat money 'derives its value from the beliefs of the economic actors that use it.'  It does not attempt to demonstrate anything other than the properties of the model described.  I am tagging this as 'not in citation given'. - Crosbiesmith (talk) 20:57, 24 November 2009 (UTC)
 * Ok, why not remove it then. The claim (any claim) should be made in a body section somewhere first and just summarized in lede. Kbrose (talk) 21:41, 24 November 2009 (UTC)
 * I thought it might be controversial. Anyway, following your encouragement, I've removed it.  Your point about claims in a lead is one I will bear in mind.  Thanks - Crosbiesmith (talk) 21:47, 24 November 2009 (UTC)

In need of attention
Kbrose - you added the Expert-subject tag to the article, giving the reason 'too much controversy in talk page, and too few reliable sources'. Can you indicate a specific controversy which merits the tag, and a specific claim from the article which is not reliably sourced please? If no specific criticisms are made I will remove the tag. Thanks - Crosbiesmith (talk) 19:06, 27 November 2009 (UTC)
 * It appears that there seems enough controversy in defining the term, and citations have been given for various statements of definition and we have agreed on removing at least one of them recently. The tag is not meant to mean that the past editors are not experts at all, but the past history doesn't bear it out, IMHO. I think someone is needed to provide good references as to accepted definitions of the terms, as I found that many citation on the web are simply copying others, often from WP, and the authoritative references may not be easily found online. I have looked with limited time given, so I may be wrong, but the tag might alert and motivate some knowledgeable reader to provide insight, rather than just walk away and dismiss WP as a poor reference. Feel free to provide this yourself in a manner that is convincing. This is not meant to offend in any way. Kbrose (talk) 19:35, 27 November 2009 (UTC)
 * The definition given in the lead sentence isn't an issue as it is sourced to a third-party publication. If someone objects to to the reliability of this source that will be an issue.  If we have two reliable sources which contradict one another that will be an issue.  The only recent controversy has been that Willem Buiter has publicly stated that Wikipedia's current definition is wrong.  Willem Buiter's unreferenced assertion in a blog entry does not invalidate the existing published source and is not a reliable source in itself.  - Crosbiesmith (talk) 20:15, 27 November 2009 (UTC)

Keynes definition
Keynes defined fiat money as follows: Fiat Money is Representative (or token) Money (i.e something the intrinsic value of the material substance of which is divorced from its monetary face value) - now generally made of paper except in the case of small denominations - which is created and issued by the State, but is not convertible by law into anything other than itself, and has no fixed value in terms of an objective standard. 

I will add this to the article lead as an additional defintion. - Crosbiesmith (talk) 17:00, 28 December 2009 (UTC)
 * Added. - Crosbiesmith (talk) 16:07, 29 December 2009 (UTC)

Criticism
The current article states "Fiat currency was anathema to American president Andrew Jackson. Jackson went so far as to pass the Specie Circular in 1836, which required all payment for government lands to be in gold or silver coin." This is unsourced. I doubt there is a source as fiat money was not at that time in use in the U.S. The Specie Circular was intended to combat the use of bank-issued credit money, not fiat money. I will remove these claims shortly. - Crosbiesmith (talk) 13:12, 30 December 2009 (UTC)

Also, the Mises criticism appears to be directed at a money-supply led credit expansion, not specifically at fiat money. I will remove this also. - Crosbiesmith (talk) 13:20, 30 December 2009 (UTC)