Friday, July 06, 2007

Why does fiat money seemingly work?

I read an excellent article a few days ago that sheds a lot of light on Ron Paul's stance on the Federal Reserve system etc. Well worth the read to stay abreast of the issues this election, if not simply to have a better understanding of our money and government etc (if you live here in the US).

"Why does fiat money seemingly work?"

The article explains the importance of the shift between currency backed by gold and silver to unbacked currency as the images below of one of the original Silver Certificates and one of the modern Federal Reserve Notes show.

A Silver Certificate (top) and Federal Reserve Note (bottom)
Before 1913 bills were labeled along the lines of "Silver Certificate - This certifies that there has been deposited in the Treasury of the United States of America One Silver Dollar payable to the bearer upon demand". After the institution of the Federal Reserve, currency was moved to unbacked notes that bore the phrase "Federal Reserve Note - This Note is Legal Tender for all debts, public and private" that relied simply upon the Federal Reserve saying they had value. Read the article linked above for a much more in-depth explanation of the historical chain of events that led to this change.

Highlights of a Silver Certificate
Highlights of a Federal Reserve Note

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