The Rules of Fiat

Fiat is an interesting term aside from being an Italian car company. In our current world, fiat mostly shows up associated with currency or money. Others of religious background may have heard the term in reference to the old Hebrew/Christian tradition of God creating the world with his spoken word. Out of nothing.

The term fiat currency has gained a lot more traction in our ever evolving financial ecosystem with the rise of crypto currencies and the like. These crypto 'coins' are the very definition of a type of fiat.

This goes much deeper into the financial world in the fact that most major accepted currencies are fiat. The U.S. Dollar (USD), Euro, British Pound, Yen and so on. It was only a more recent move in western history that we moved from what was known as 'the gold standard' towards fiat currency. The gold standard simply meant that every USD was backed by that amount of gold and could be exchanged for an equal value in gold.

There is much with fiat currency that mirrors religious ideas of faith - belief in things unseen. So, I began to ask myself, “What needs to be in place in order for Fiat to succeed?”

What came from this are a few helpful rules in understanding fiat and how it becomes “real.”

Ultimately, fiat is dependent upon the strong relational dynamic of an ENTITY, PEOPLE and the actual FIAT ITEM. Each must play their role for the belief to continue and exist. If one fails, the bubble bursts and fiat is no more.

FIAT must come from somewhere. It has be be spoken or decreed into existence. It requires an ENTITY to speak it into existence. It also requires the ENTITY to make and govern its use. FIAT must have and maintain usefulness, meaning and value. Both the FIAT and the ENTITY need the third partner in the dynamic, PEOPLE. PEOPLE bring the use and the belief or faith in the ENTITY and the FIAT.

With the USD we can easily see the dynamic at play. Government issues and governs the dollar. It has the responsibility of ensuring the dollar keeps its value and that it is used by its citizens as monetary exchange. The dollar is useful and valued by both the government and the people in the U.S. and beyond. The citizens of the U.S. use it and still measure labor, goods and services against it. This gives strength to the dollar and keeps it from collapse. This strength creates economic and social stability which further adds strength. This is how the fiat dollar becomes “real.”

You can also see how the dynamic could quickly fall apart if there is zero belief in the government, or the people stop using the USD or the USD becomes a worthless method of exchange and measurement of value. The dynamic must be held together for the sake of everyone involved.

This is the first “rule” of fiat.