non-fiat currencies

MsMorrisine · October 14, 2012 3:20PM

what commodity do we have an infinite supply of?

don't we need a virtually unlimited supply of something as a backing to a currency?

gold and silver has limits to amounts we can mine. do we then move to diamonds?

do we have something else? grains of sand?

do we hope not everyone cashes in paper for reality? can we really expect that, especially in times of economic trouble?

daOnlyBG · October 14, 2012 3:23PM

Water.

daOnlyBG · October 14, 2012 3:24PM

Sorry- I said "water," but then realized that I misunderstood your question. (btw, how do you delete your own comments on threads? sorry, a bit new around here)

MsMorrisine · October 14, 2012 3:29PM

just edit it to something else

water may be golden as population increases

derryb · October 14, 2012 3:31PM

What makes a currency strong is demand for the currency, especially on the foreign markets. What creates demand for the currency is the knowledge that the central bank issuing it will protect its value by not "watering" it down with continuous creation of more of it out of thin air. Why would there be demand for a dollar backed by water when all one has to do is turn on the faucet to get all the water one wants?

When the dollar was backed by gold and could be redeemed for gold there was great demand for it. When the gold backing was removed and it could no longer be exchanged for gold there was still international demand for it because the Saudis agreed to only accept dollars for oil. Now that international trade for oil is accepting other forms of payment demand for the dollar is dwindling, especially since the central bank issuing it is recklessly issuing unlimited amounts of it.

The reason for backing a currency with something that is in limited supply, such as gold, is to put restraints on those that would create currency out of thin air. A gold backed dollar requires someone to put up the gold, at a certain expense, to create new dollars. A gold backed currency forces fiscal responsibility upon those that issue it and protects its value for those that would hold it, including foreign governments.

It's like the plastic poker chips you have to pay $1 for at the casino. In reality they are backed by a $1 bill, but If you could buy them with a cup of water imagine how worthless they would be.

daOnlyBG · October 14, 2012 3:42PM

Yeah, that might be the only way.. thanks.

As for population increase- yeah, and we don't even have to wait until then to see that it's invaluable. Geopolitical conflicts throughout the world have begun due to access of water, and economists regularly state that the only definite commodity that'll always be in regular demand is water itself.

But you weren't asking for the most valuable commodity in the future- you were asking for an infinite supply of something (which water may not necessarily be) and something to back up currencies.

However, I must ask: why do we need a material to back up currency? I mean, the US has been doing it for quite some time. I suppose you could present arguments in favor of a commodity-backed currency (i.e., "gold standard") but the US has been surviving off that standard for quite some time now. Heck, during the time the US went off the gold standard, countries (i.e., Zimbabwe) even pegged their currency to the value of the US dollar.

Currencies work in funny ways, but ultimately, I'm not so sure that we must back them up with material. I guess one could argue that it's a fine way to keep government spending in check (don't spend a penny that can't be backed by some gold) but regardless, the US is capable of large amounts of wealth, maybe even an infinite amount- and that wealth may be restricted from being monetized if we only keep that money backed by a finite commodity, such as gold or silver.

Good question, though, and it certainly leaves doors open for debates.

PerryHall · October 14, 2012 3:46PM

<< what commodity do we have an infinite supply of? >>

Unless I misunderstand the definition of "infinite", I can't think of any.

MsMorrisine · October 14, 2012 4:12PM

with the water comment we may not need infinite, just a lot more of whatever we have now.

growth will slow once population tops out. slow but hopefully not stop.

maybe by then we will all have been bought by China and India using our own worthless dollars.

MsMorrisine · October 14, 2012 4:15PM

<< 

<< what commodity do we have an infinite supply of? >>

Unless I misunderstand the definition of "infinite", I can't think of any. >>

will we need a backed, non-fiat currency?
in 1000 years, will we have enough of said backing commodity as economic growth continues?

that's my real question.

SaorAlba · October 14, 2012 8:24PM

One thing that without a doubt there is an infinite supply of in the world is stupidity. In fact you cannot escape it, it is everywhere.

ambro51 · October 14, 2012 9:52PM

An interesting and very early case study in fiat vs. "something real" took place in Bermuda, the Sommer Islands. With a limited population and one company store, tobacco had became the commodity which became "monetized". In 1615 coinage was proposed and struck in England. It was made from thin brass planchets which were silver plated. These coins were brought in in 1616 with the next supply ship, intended to pay wages and to be used ONLY on the islands and in the company store. They held NO metal value and were intended to replace tobacco as a medium of exchange. No records exist on their overall acceptance but it is recorded that when the next supply ship arrived they sold goods to the colonists who reverted to tobacco. By 1624 the coinage was spoken of as an event of the past. Most seem to have been discarded with only a few remaining "above ground" to be rediscovered by numismatists.

TwoSides2aCoin · October 14, 2012 9:56PM

<< what commodity do we have an infinite supply of?

don't we need a virtually unlimited supply of something as a backing to a currency?

gold and silver has limits to amounts we can mine. do we then move to diamonds?

do we have something else? grains of sand?

do we hope not everyone cashes in paper for reality? can we really expect that, especially in times of economic trouble? >>

ziggy29 · October 14, 2012 11:13PM

<< what commodity do we have an infinite supply of? >>

"Only two things are infinite, the universe and human stupidity -- and I'm not sure about the universe." -- Albert Einstein

dollarsandcents · October 14, 2012 11:16PM

BigMacs

nwcoast · October 15, 2012 1:33AM

Shouldn't a currency be based on something with a 'finite' supply and value??
Otherwise it would of course be worthless....

What's wrong???
Lost your faith in the "full faith and credit" one of the greatests economies on the planet?

MsMorrisine · October 15, 2012 2:59AM

lost faith?

yes.

JCMhouston · October 15, 2012 2:59AM

<< don't we need a virtually unlimited supply of something as a backing to a currency? >>

If you have an unlimited supply of something then it has little or no value. In order to have a non-fiat currency it must be backed by something of recognized value. There is an argument to be made that non-fiat currency is not practical now as it limits the amount of currency that can be in circulation.

Steve27 · October 15, 2012 3:02AM

I liked the "water" answer.

LindeDad · October 15, 2012 5:23AM

Can't be diamonds anymore there seems to be way too many now that the Russian have let the cat out of the bag.

cladking · October 15, 2012 6:02AM

There's an infinite supply of lots of things like beliefs, debt, and the ability of humans to ignore facts.

Gold backing never worked because even with gold politicians will still spend more than they have. Every
gold currency ever instituted has failed. There is no "intrinsic value" in gold anyway since value is a collect-
ive belief and beliefs are always subject to revision. Individuals rarely modify their beliefs but groups do.
Gold is inappropriate in the modern world due to its valatility and propensity to cause economic crashes. All
fiat systems are certain to crash eventually as well and denying it is like saying all men aren't mortal because
all men aren't dead.

The one thing in infinite supply upon which currency should be based is the genius of mankind. Economies
and populations steadily increase because man continually overcomes obstacles and invents new ways to
increase wealth (though ironically in the here and now we are destroying wealth to increase the finances of
a few).

Currency should be like shares of stock except that they grant no special privledges or tax breaks because
you have a lot of them. They should pay a dividend every year set by the increase in productivity of the na-
tion. The dividend will make the currency strong and form the basis of a real capitalism. Rather than building
garbage that quickly goes into landfill to keep the economy churning we need quality products and a long
term perspective.

non-fiat currencies

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