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This is the main reason that paper money was developed in China in the first place and why it continued in many parts of the world. The impact of fiat currency on the world has been joker king a predominantly negative development. Rather than hold dollars, these European countries would rather hold gold. Most notably France, under President Charles de Gaulle, and Switzerland were selling overvalued dollars and buying gold.
The history of fiat currency dates back to ancient China, where paper money first appeared during the Tang Dynasty in the 7th century. Over time, this concept spread to other parts of the world, evolving into the form we recognize today. During the early modern period, many economies transitioned from commodity-based currencies to fiat systems to address the limitations of gold and silver. Governments realized that controlling the money supply could enhance economic stability and growth.
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Americans began a run on the banks and foreigners, losing confidence in the dollar, withdrew gold. Fractional reserve banks could not meet the demands of their customers and failed in enormous numbers. Debt exploded, prices rose, shortages occurred and the money printing continued. Russia went into a hyperinflation under the Bolsheviks (and again in 1992 after the collapse of the Soviet Union), as did Germany under the new Weimar Republic.
In most cases, the word is also used for paper money or coins with a face value. The currency is dependent on the value of the economy and government enforcement. The most known examples of fiat money are the United States dollar, Euro, and Pound sterling.
The balance lies in the careful and prudent management of the money supply and economic policies by central banks and governments. In many times in history fiat currency has been backed by gold and silver even if it has not been convertible. This is when governments and central banks have been restrained in the amount of money they can print based on the amount of hard money they have in their vaults.
