Saturday Brain Storming Thought (248) 09/11/2024

FIAT MONEY

Fiat Money is a type of government issued currency that is not backed by a precious metal, such as gold or silver, or backed by any other tangible asset or commodity

Fiat currency is typically designated by the issuing government to be legal tender, and is authorized by government regulation

Key Takeaways of Fiat Money

1) Fiat Money is a government issued currency that is not backed by a commodity such as gold

2) Fiat Money gives the central bank greater control over the economy because they can control how much money is printed

3) Most modern paper currencies, such as ruppe, USD, are fiat currencies

4) One danger of Fiat Money is that governments can print too much of it, resulting in hyperinflation

5) Cheque is not a fiat money because it is not backed by the Central Bank or RBI

Types of Money

1) Commercial Money

2) Fiduciary Money

3) Fiat Money

4) Commodity Money

History of Fiat Money

1) Fiat Money originated in China during the 10 th century, primarily during the Yuan, Tang, Song and Ming dynasties

2) Due to the limited supply of precious metals, China suffered from a coin shortage

3) Paper drafts and private notes soon after and became the only legal tender by the Yuan Dynasty

4) France and American colonies began using paper currencies in the 18 th century

5) Government issued notes were regarded as bills of credit commonly used to pay taxes

6) Fiat Money rose in popularity during times of war to preserve the value of precious metals

Advantages of Fiat Money

1) It gives issuers greater control over the money supply, helping them manage the economy

2) It’s cost-effective and easy to produce for cheap

3) It is relatively stable and easily stores its current value, unlike commodity-backed currencies that can fluctuate short term

4) It is widely accepted and can be used as legal tender in various settings

Disadvantages of Fiat Money

1) Printing too much money can stoke inflation

2) Its potentially unlimited supply can erode value and create bubbles

3) With its value tied to a government, a fiat currency can significantly depreciate if the issuer runs into trouble

Characteristics of Fiat Money

1) It does not represent anything of intrinsic value

2) It is decreed to be legal tender

Functions of Fiat Money

1) Store of value

2) Unit of account

3) Medium of exchange

Meaning of Fiat

The term Fiat comes from Latin, often translated as “let it be done” or “it shall be”

Fiat Money holds value solely because the government maintains it and because people agree on its value during transactions

Top Fiat Currencies

1) US Dollar

2) Euro

3) British Pound

4) Japanese Yen

5) Indian Rupee

Trading of Fiat Money

1) Forex market

This is the world’s largest financial market where Fiat Currencies are traded, it operates 24 hours a day, making it a hub of constant activity

2) Broker Platforms

To engage in Forex Trading, one typically uses online broker platforms that provide access to the market

3) Analysis Techniques

Successful trading often involves a mix of technical and fundamental analysis, this means studying price charts, global news, economic indicators and other relevant data

4) Leverage

Many traders use leverage in the Forex market, which allows them to control larger positions over a smaller amount of capital

However, it’s essential to note that while leverage can amplify profits, it can also increase losses

5) Stay informed

The value of Fiat Currencies can be influenced by a myriad of factors, from geopolitical events to economic policies

As such, staying updated with global news is paramount for traders

Trading of Fiat Currencies

1) Open an account

2) Allowing you to trade on both sides of the market whether you think that price will rise or fall

3) Learn forex trading strategies that capitalise on currency movements

4) To view the forex prizes, open the next generation trading platform and click on products then currencies

5) Click on a forex pair to open a chart

6) Look at a different chart time frame, add technical indicators and check the News and Analysis tab for news that is driving the price

7) Click the bid or ask price to sell or buy

8) place your order

9) Track your trade in the positions tab

Fiat Currency in India as of November 2021

India
Rs 193,129,000,000,000.00

USA
$20,709,367,701,000.00

Bitcoin and Fiat currency

Bitcoin is not a fiat currency

Fiat Money derives its value from supply and demand rather than from any Physical Commodity

Strongest Fiat Currencies in the world (2024)

1) Kuwaiti Dinar – Kuwait

2) Bahraini Dinar – Baharin

3) Omani Rial – Oman

4) Jordanian Dinar – Jordan

5) British Pound Sterling – United Kingdom

6) Cayman Islands Dollar – Cayman Islands

7) Gibraltar Pound – Gibraltar

8) Swiss Franc – Switzerland

9) Euro – Eurozone countries

10) United States Dollar – United States

Strength of Fiat Currencies depends on

1) Economic stability

2) Interest rates

3) Political stability

4) Inflation rates

5) Balance of trades

6) Foreign exchange reserves

7) Debt levels

Strong Fiat Currency Impact

1) Strong Currencies makes imports cheaper, benefiting consumers by reducing cost of imported goods and services

2) Export Competitiveness potentially impacting a nation’s trade balance

3) Strong Currencies often attract foreign investments, bolstering economic growth and stability

4) Tourism benefit from stronger currencies

COMPILED BY:-

Er. Avinash Kulkarni
9822011051

Chartered Engineer, Govt Regd Valuer, IBBI Regd Valuer