I just thinking aloud if anyone of us ever wonder how money being created? And how does the system of money work? It’s important to understand how this money works, as it will be curial toward building your Big Fat Pillar.
Let us read on, and i shall explain it with illustration and video.
First of all, what is Fiat Money?
Money as we know it, something we use it everyday, but it has some hidden secret whom most of us are not aware of. One of the biggest secret of money is that almost all Currencies in the world belong to Fiat Money type. And what so special about this Fiat Money Currency, is that it not peg to any Commodities or Gold. Instead, it’s peg to the rating given to each country instead. Click here to find out more on the rating for each Currency!
Fiat Money created inflation.
Since Fiat Money is not peg to any Commodity or Gold, it is very easy to create money as to compare to create Money that is link to Commodities or Gold. In the system where Money being link to Commodities or Gold, it is highly restricted by the amount of Commodities or Gold that each country hold.
And in world of Fiat Money, you can expect more Fiat Money to be created each second, minutes, hours, day. You just need high quantity paper or printing material and sophisticated printing technique to print out the perfect looking Fiat Money. It get even worse in the era of Information Technology, where Fiat Money are stored in the electronic way. It just need more hard-disk space in the Database system!
With more Fiat Money flooding the market, of course, for the same item, it cost more Fiat Money in the future.
How Fiat Money being created.
In 1971 August 15, US President Nixon delink US Currency with Gold, and that spark off the start of Fiat Money System to be widely adopted by each Country’s Central Bank.
The below picture perfectly illustrated the creation of modern money, where Bank just need to keep 10% of each deposit amount and they are allowed to borrow out the remaining 90%. The cycle just going on. For more detail, go visit http://money.howstuffworks.com/personal-finance/banking/bank1.htm.
For those whom still did not get it, i guess you get a better picture of Fiat Money by watching the following videos. Sit back and enjoy the show!
Video 1 – 47min
Video 2 – 1hr 16min
Video 3 – 1hr 2min