Fiat Currency
Fiat currencies are made by the decree of governments and/or central banks. They are not backed by physical commodities, like gold or silver, and instead by the strength and stability of the government that issues it. Because of this, governments can arbitrarily create money out of thin air whenever they decide they need to fund a war, bail out a bank, or a myriad of other reasons. Paper monies like the US dollar, the EU euro, and the Japanese yuan are all fiat currencies. All of the world’s nations have adopted fiat money as their main monetary issuance.
Fiat currencies are particularly susceptible to inflation. In fact, inflation is virtually inevitable for fiat currencies. So precise is the inflation of the US dollar in particular, that the United States Bureau of Labor Statistics has created an inflation calculator. Using this calculator you can calculate the price of a good of any month going back to 1913, the birth-year of fiat currency in the United States via the Federal Reserve Act. From January 1913 to January 2020, the US dollar has seen massive inflation. $100 in January of 1913 is worth $2,632.36 in January 2020 dollars. That means that prices have raised over 2,500% since 1913, a sure-fire sign of inflation.
Links
- More information and charts on inflation from 1913 – 2020 – in2013dollars.com
- Fiat money – Investopedia
- CPI inflation calculator – US Bureau of Labor and Statistics