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Fiduciary Money

Fiduciary money or inorganic money is money that is backed by the trust of a society.

In other words, fiat money is not based on the value of precious metals, but on the general belief that such money has value. Also known as inconvertible money or paper money.

History of fiat money

For most of history, money had intrinsic value. That is, currency or money was worth as much as its composition. Generally gold and silver have always been the most used and quoted metals in all societies. However, as the population and transactions have grown it is not possible to use this method. Subsequently, and in a mixed form, a system was created, called the Gold Standard, through which the coins and banknotes were backed by an amount of gold. That is to say, although the coin was not composed of gold and its composition was of very little value, that coin (the indicated value) gave right to a certain part of this metal.

At present, we use a fiduciary system, that is, a system based on trust or belief in the valuation of coins and banknotes. For example, no note of 20, 100 or 500 euros is really worth that, nor any coin is worth the amount that composes it, but the whole community take those values for granted and validates them in order to be able to market. They trust the value they represent.

Control and issuance of fiduciary money

All fiat money is controlled and issued by agencies, generally the central banks of each country and supranational central banks (such as the International Monetary Fund, the European Central Bank, the European Investment Bank and other similar international organizations), to manage and control of it. These organizations are responsible for ensuring authenticity and give confidence to user-consumers, supporting the system.

For this same reason, checks, promissory notes and other monetary legal documents were also created to be able to carry out transactions without the need to transport real currency. They have the value that is assigned (the amount that is written) and are of general recognition.



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