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  1. #1
    Junior Member Walden's Avatar
    Join Date
    Feb 2008

    What's a better form of currency: fiat currency backed by nothing or...

    ...paper, elastic and digital money backed..? by gold or another precious commodity?

  2. #2
    Senior Member Prince's Avatar
    Join Date
    May 2008
    Theoretically speaking, a currency backed by gold or any other physical comodity would work better in controlling inflation, with such a currency money supplied would be limited, since the central bank has to match the amount of money supplied with the amount of precious commodity it has.

    A fiat currency is worse off because, the FED can print out money whenever it wants, causing inflation in the long run, which obvioulsy is not a desirable thing for cash holders. moreover paper currency does not have any real value, a 10Yuan note(chinese money) does not have any value in America, similarly money des not really have any value during war time.

    However, a currency backed by gold is not easy to implement, as i said it limits the power of the central bank, meaning that in the events of crisis, the central bank will not have any tool to save the economy.

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