Fiat currency means that it is backed by the good faith of the government. The US Dollar, The Euro and the Zimbabwean Dollar – all currencies are fiat currency, and all currency can be recalled and revalued, which an inherent danger is valuing assets any place on the globe. That’s why, at some point in the future, a digital currency will replace fiat currency. The collective crowd will determine the value of the digital currency, not the government, and what happened in Zimbabwe will no longer occur.
Economic collapse led to the devaluation of the Zimbabwe Dollar to the point where the currency had so many zeros on the bill that the ink became more valuable than the note itself. The government then stopped printing the currency and took it out of circulation, where it was replaced by the US Dollar and South African rand. It’s been out of circulation since 2009.
Local Zimbabweans stashed them in closets and safe places, waiting until the government benchmarked the country's currency (this is where the good faith part comes in), and this week declared you would get 35 cents (using the US Dollar as a conversion comparison) for 100 million Zimbabwe Dollars. Let me also explain that the currency value went from 0.13 per Z-Dollar to 0.00002 per Z-Dollar in one year. 2008 was the fateful year when the good faith of the government was no longer good, but had a distinctly Bernie Madoff-like quality to it.
All currency (except crypto currency) depends on the government, because they can toggle the value of the currency by printing money. It is done every day via Treasury Auctions. As we finance our economy by firing up the printing presses, everyone does it, so it must be OK until it's not OK…much like Zimbabwe.
Donald Trump said in his Presidential speech (that sounds weird to say and is strange to write) that China and Japan have been buying our currency for decades and they own more of our country than we know. In the case of China, they have been pegging the Chinese Yuan to the US Dollar, so they do not give the illusion of a fiat currency, all they have to do is wait for ours to collapse and start their own.
The Internet of Things will Give Way to the Digital Wallet
The age will come when the digital wallet and digital currency will supplant fiat currency, as the Internet of things becomes more relevant and the collective eliminates disasters like Zimbabwe. The world is becoming a global trading economy before our eyes, and will no longer depend on governments that manipulate the currency to the detriment of the people. It will benchmark itself to a digital currency with low transaction costs and easy to use where you can pay with your cell phone or a chip in your wallet. The Internet is changing many things, but the change it will make to the way we pay for goods and services worldwide will be the most impactful change.
DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer