Thursday, June 24, 2021

A History of Fiat Currency Collapses and Why We Need to Be Worried

When a currency is mentioned, the conversation often revolves around paper money. Currency, however, can be any item that has an agreedupon value. Paper is one of its forms, but metal coins, foodstuffs of different sorts, pottery, and other bartered goods are considered currency as well.  Today, we even have a completely intangible digital currency. Most nations print their own paper money, which is not backed by a physical commodity like gold, silver, etc. Such a system is called “Fiat currency.”  Fiat currencies from ancient to modern times have had a history of catastrophic collapse.


Fiat currency collapses


The oldest example of fiat currency can be seen in ancient Rome where the denarius was widely used. At the beginning of the Roman Empire around 1 CE, the Denarius was made of pure silver. Fifty-four years later, the content of silver declined to 94 percent. By 100 CE, silver made up 85 percent of the coin. In 218 CE, the share of silver fell to 43 percent. In 244 CE, just 0.05 percent of the Denarius contained silver. By the time of the Roman collapse, the number fell to 0.02 percent.


Roman Emperors had realized that by cutting the silver used in each coin, they would end up with more money. If a coin went from a 100 percent silver composition to 50 percent, one would have double the coins using the same amount of silver. During 500 years of the Roman Empire, the value of the Denarius kept on falling proportionate to the content of silver until Rome itself ceased to exist. 


Hyperinflation in Germany became so bad that notes were literally worthless. (Image: via wikimedia CC BY-SA 3.0)

Fiat currencies continued to be created and to collapse.  For example, in Germany, just after WWI, the German government realized that it was not in a financial position to pay reparations as ordered. Much like the Romans, their solution was to simply print more money. “Soon, too much money was in circulation in the region, which led to hyperinflation that rendered the money worthless. Previously, the largest denomination of papiermark (the currency’s name) was worth 50,000 marks (US$28,165). In 1923, the largest denomination climbed to 1 trillion marks (US$563 billion) The money was no longer worth anything and was instead used to heat furnaces. Burning the currency to keep warm was considered more efficient than using it for trade,” according to Dinar Dirham.

A more recent example of a Fiat currency’s devaluation and collapse occurred in Argentina in the mid-1970s.  The nation was placed under an oil embargo by OPEC and faced a severe economic recession. The Argentinian government, as in our previous examples, responded by printing large amounts of money. This eventually resulted in inflation and economic decline. In very recent times, another well-known case of hyperinflation occurred in Zimbabwe, when it experienced extreme inflation in November 2008 with the rate of inflation at a mind-boggling 79,600,000,000 percent per month. This essentially made 1 U.S. dollar equivalent to $2,621,984,228 Zimbabwe dollars.


Dollar in danger


A study by DollarDaze found that there has never been a fiat currency that has been successful in holding its value over time. Let’s look at the most successful fiat currency, the British pound, which is the oldest surviving example. In its entire existence, the British pound has lost almost 99.5 percent of its value.


The U.S. dollar seems to be on its path to meet the same end as Roman and German fiat currencies. (Image: pixabay / CC0 1.0)


The most used currency internationally is the U.S. dollar. Since it was issued in 1913, the U.S. dollar has lost 92 percent of its value. To pay off billions of dollars of loans every year, the U.S. has to keep increasing its supply of bills by around 13 percent every year, pushing the value of the U.S. dollar even lower. And just as it happened with Rome, Germany, and countless other nations, the only logical end of this cycle is in the dollar’s complete devaluation and eventual cessation.


Unlike the denarius or papiermark, however, the end of the U.S. dollar will affect the world to a catastrophic degree since it is the quintessential international currency. The outcome of such a collapse is hard to predict. Maybe the world leaders will decide to strictly back all their currencies with gold or some other physical commodity. Or they might decide to continue with the fiat system, only to trigger another collapse a few decades later. Back in 2017, Deutsche Bank Strategist Jim Reid suggested that Fiat currencies, in general, would soon come to an end.   

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Jack Roberts
Jack Roberts is an author who specializes in World Events and Global geopolitics.

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