The money called fiduciary is the one that is based on the faith or trust of the community, that is, it is not backed by precious metals or anything that is not a promise to pay by the issuing entity. It is the monetary model that we currently operate in the world, and it is that of the United States dollar , the euro and all other reserve currencies.1
Summary
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- 1 Origin
- 2 Example
- 3 Advantages
- 4 Economy
- 5 Sources
Origin
Historically, money was a commodity with intrinsic value, and coins were worth their weight in the metal they were cast from. With the invention of paper money, the first forms of banknotes appeared that were certified for a certain amount of gold . But during the first half of the 20th century, money lost its character and the support it had in gold (1971), to become a fiduciary element, without intrinsic value but with its own legal value, which is as we know it. Several attempts were made, which at first were very unfortunate but, little by little, they were forming the basis for the wide acceptance that bills and coins currently have, which is the main means of payment used in the world.
Example
For example, the nominal value of a 200-peso bill is precisely 200 pesos, but its intrinsic value (to which we can sell it as paper) is less. However, when someone gives us a piece of 200 pesos we receive it according to its nominal value.
Advantage
Those advantages are that fiat money is easier to transport, divisible and durable, conditions that other types of money do not necessarily meet. Likewise, the use of fiat money creates resources for the issuer (the difference between the nominal value and the cost).
Economy
Trust money has been a major engine of growth in the economy in recent decades. His ability to be used in exchanges between society and the trust that it places in him, are what give him the power to move the economy. But in turn, in periods of economic recession, this type of money accelerates the fall of the cycle, when credit does not flow, the pace of the economy slows down and as the prices of goods and services rise, the purchasing power of the currency in question decreases. . This entire framework is controlled by central banks through their monetary policies
