Fiat: It’s Not Just a Car

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What comes to mind when you see or hear the word FIAT? While it is indeed a brand of Italian automobile, as a person interested in precious metals and personal finances “fiat” has a much more important meaning.

A textbook definition of fiat in the monetary sense is “state-issued money which is neither convertible by law into any other thing, nor fixed in value to any objective standard.” The term derives from the Latin word meaning “let it become.” Let’s break down that definition a bit and explore the reasons WHY it is important for you to understand and WHAT you should do once you understand it.

As hinted at from the Latin origin, fiat money is created by the decree of a sovereign government. In other words, the only reason a US Dollar, Mexican Peso, or Japanese Yen exists is because the governments of those nations ordered them into existence. They are simply pieces of paper, chips of base metal, or digital credits that are produced by the government as a common means of conducting financial transactions among their citizens. Without getting too deep into economic theory, an individual produces value through their labor (such as at their workplace) and is compensated for that labor primarily in money (ie a paycheck). That money is denominated in the fiat currency created by the government of the country in which they live and work.

Examining the definition of fiat further, we discover that it is not directly convertible or exchangeable into anything else. In other words, there is nothing of intrinsic worth that backs up the value of the currency you receive for your labor. It has value merely because the government says it does. Interesting bit of information, huh? The second part of the definition is even more enlightening. The value of that currency is not even fixed to any objective standard. Therefore, we now understand that fiat money is intrinsically worthless, with a value based only upon the legal status given to it by the government.

Why should you care about this? The simple answer is because for most of us, the lifestyle of ourselves and our family is directly tied to the compensation we get for our labor and the future financial security of our families is directly tied to the value of what we save from that compensation. Once you understand that the value or buying power of the money you save is not secured by anything of intrinsic worth, the natural question is how do you as an individual introduce some intrinsic value into your savings and build security into your family’s financial future?

Just about everyone agrees that stashing away cash is not a good long-term savings plan. There is no mechanism for a dollar to increase in value on its own. In fact, even very low inflation will rob value from a dollar that sits for a long time. Generally, the equities market (stocks, bonds etc) are where most people turn to store their savings with the hope that the value of their holdings will increase over time. Historically and in the macro view, this has been an effective way for individuals to grow their savings. BUT there are many risks to consider, especially in the short term. Geopolitical events, recessions and even market manipulation can all introduce volatility and loss to a portfolio. Companies can falter and their stocks can drop in value or even become worthless. A final point to consider is that the value of stocks and bonds are all denominated in fiat currency! So concern about the stability of fiat money underlies any savings that is valued in that money.

BOLD Precious Metals exists to offer an alternative to fiat money and the saving methods based on it. We are not here to say that you should liquidate all your savings and dump it into precious metals. But what we do strongly suggest is that you consider doing what the government no longer does for us and build slowly over time a personal savings secured by something other than a promise. For thousands of years, civilizations have treasured gold and silver for their rarity and beauty. They are not something that a government can print or create on a computer network. They will never be worthless and a savings plan that includes them will be more secure and protected against catastrophic loss than savings that are only denominated in fiat money.

BOLD offers many options for individuals interested in trading their fiat dollars for silver and gold. You might ask, what BOLD does with the dollars we get – well we turn around and buy more gold and silver as fast as we can! Hopefully this discussion has been interesting and enlightening to you and has made you think more deeply about what it really means to have a secure financial plan for you and your family. We encourage you to explore our site, shop our inventory, and ask us any questions you might have.