Home » BLOG » HOW TO KNOW FIAT CURRENCY SYSTEM?

HOW TO KNOW FIAT CURRENCY SYSTEM?

FIAT CURRENCY SYSTEM

Fiat Currency is an exchange system in the current world.As a means of currency exchange in antiquity Grain, Precious metals, gems, etc were used.

KNOW FIAT CURRENCY SYSTEM HOW?

But is currently the most widely used paper note. Paper note currency is being digitally exchanged for tech-based online transactions. That is to say, the main driving force of the economic system is the paper note or currency.

History of currency :

Economic history is much older than the history of human civilization. In ancient times when the practice of exchange was introduced At that time people conducted economic activities through the exchange of grain or goods. But in this case, the correct exchange pricing would cause several problems such as the transfer of the product, the perishability of the product, and so on.

Currency was invented to solve these problems.

In Egyptian civilization, Metal rings were used as money.

In Greek civilization Naturally occurring alloys, Coins made of electrons are used as money.

The Currency or paper note originated in the middle of the sixth to ninth centuries in the country of China.

Where paper notes have been issued in contrast to deposits of precious metals including Gold and Silver.

Later, through that paper exchange, traders used to buy and sell goods and conduct commercial activities.

In this way, traders did not always have to carry precious metals and gemstones around for transactions.

Europe started using banknotes as a currency in the 1600th century:

Early at the beginning of the introduction of banknotes in Europe, Some valuable metals also depended on the value of the notes, such as silver and rupa.

But in the early 1800th century, the United Kingdom, Germany, France, the United States, and many other countries brought their economic systems to the Gold Standard.

In this system, the currencies of the country are allowed to transact with Gold-

That means anyone can convert a 100 dollar note into equivalent gold. Paper notes represent the value of gold in a certain amount as per the gold standard system.

However, through the Wood System Agreement of Britain in 1946, As one of the world’s dominant economic powers for the convenience of international trading, 44 countries fixed their currencies against the US currency. Then the US government saw the opportunity to transact US dollar exchange gold for unique countries. But as a result, the rejection of gold in the US economy was rapidly declining.

What is Fiat currency ? how does it work ?

In 1971, US President Richard Nixon set out to solve this problem by dealing with the gold transaction by merging the US currency with gold. This creates a new kind of currency. Which is now known as Fiat Currency.

 Fiat currency system is not associated with any commodity such as gold or silver.

 Fiat currency system has no value of its own.

 Its value is determined primarily by the country’s monetary policy.

Currency is a kind of physical rod which is used as a system of exchange such as paper notes and coin.

Generally speaking, a currency is basically an economic unit recognized by the government of a particular country as a system of exchange within its borders.

For example, the recognized unit of money in Bangladesh is money.

Recognition of US currency unit dollars.

The pound sterling is the unit of recognition of British money.

The United Nations has recognized the 180 currencies worldwide.

Although money is measured in terms of currency, currency does not have the same meaning.

There are two methods for determining fiat currency values

1. Floating Rate 2. Fixed-Rate or pegged rate.

1. Floating Rate: ? What is floating rate?

The currency value in a floating rate system is largely determined based on open market supply and demand.

The value increases as the demand in this system increases.

The value decreases as the demand in this system decreases.

Demand depends on several internal sectors of the country-Such as Economics Size Production and Service, International Trading Economic Performance Political Stability, Industrial Growth, and GDP Growth.

2. Fixed Rate or pegged rate: What is Fixed Rate or pegged rate ?

The second method of determining the currency value is the fixed-rate or pegged rate.

In this way, the government of a country determines its currency value against the Central Bank of that country or any other major currency. In this case, most countries value their currency with the US currency.

Fiat currency

Leave a Comment

Your email address will not be published. Required fields are marked *