The death of fiat
Fiat will die considerably quicker than anyone thinks. It is oil which will kill them off this time, starting with Japan’s yen.
All fiat currencies end either by going back onto a metallic exchange standard or they simply die. The reason they die is loss of their users’ faith in their value, which always comes about through abuse. From Roman times to the current day, the abuse was by metallic debasement. Coins are now no more than tokens. The more topical abuse today is in the management of the currency by central banks, coupled with excess government spending over revenues.
In modern accounting, it is the accumulation of government debt which finally breaks a currency. We can begin to see this today in all G7 nations, whose currencies are the US dollar, the Canadian dollar, the euro, yen, and pound. The most critical debt situation is in Japan’s yen where the government’s debt is 240% of GDP, of which about half is owned by the Bank of Japan through quantitative easing. When the issuer of a currency buys in its government’s debt obligations it amounts to naked currency debasement.
The reasons for Japan’s debts need not detain us, other than to say they are still increasing. The question arises as to whether it can continue to be financed.
