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All Money Is ‘Fiat Money,’ Most Money Is ‘Credit Money’

There seems to be some confusion afoot about what ‘fiat currencies’ are, whether the dollar is one of them, and whether it ought or ought not to be. Much of this stems from latterday gold enthusiasts like Peter Schiff and, ironically, what I call his Cryptopian antagonists.

Goldbugs use ‘fiat’ as a term of opprobrium, suggesting that money by decree is a threat to liberty and currency value alike thanks to the power conferred on the state or its agent – the central banker. Cryptopians talk the same talk, thereby infuriating the likes of Schiff.

Schiff’s beef with the Cryptopians is that they replace what he views as one valueless instrument – the fiat dollar – with another, the so-called crypto asset – neither of which bears any ‘intrinsic’ value. Only substances like gold, Schiff maintains in his guise as a latterday exponent of ‘commodity money,’ retains that.

In this dispute we should count Schiff the dubious ‘winner,’ for at least he is backhandedly recognizing, unlike the Cryptopians, that scarcity alone, while necessary to what the political economists dubbed exchange value, is not sufficient. Some additional form of value is likewise requisite.

‘Intrinsic’ could work here, were we to unpack it as ‘use’ of a particular sort. Unfortunately, that is where Peter gets lost. For gold’s use in jewelry and the like is not sufficient, even in conjunction with its finitude, to render it ‘intrinsically’ monetary – any more than like characteristics on the part of diamonds render them suitable as for use as currency in contemporary economies.


Gold didn’t become monetary because it was precious. It became precious when it became monetary – much like silver throughout, but not so much after, its tenure as money. Both were made monetary, as it happens, for other reasons – namely their malleability for purposes of stamping with sovereign imagery (‘minting’), combined with their corrosion-resistance.

And there is the rub. First came the fiat – the decree of the form legal tender would take (coins, bullion, etc.). Then came what I’ll call ‘the specs for the specie’ – the material best adapted to conforming with that form. In this sense, gold was as ‘fiat’ as paper and bank drafts are now – and as gold/dollar exchange rates early last century were. (The ‘gold standard’ was a standard, after all.)

In this light, I am able partly to endorse a recent appeal by FT’s Brendan Greeley to stop calling our money ‘fiat money.’ Unfortunately, I cannot endorse his particular reasons for doing so. My own reasons I have in effect just suggested. To call it fiat money is just to call it … money.           

Greeley’s reasons for rejecting the term ‘fiat money,’ at least as applied to the US dollar, are more obscure. He seems to think bank, and central bank, money’s credit character rules out its fiat character. If so, I fear he has lapsed into category error. Like saying that ‘Robert is tall rather than human.’

It looks to me as though the source of Greeley’s error might be his apparently running-together (a) how a would-be monetary instrument is legally or conventionally deemed monetary, with (b) how that instrument is legally or conventionally issued. The ‘fiat’ moniker generally pertains to (a), while the ‘credit’ moniker generally pertains to (b).

Both (a) and (b) involve law, convention, or both. And in that sense credit instruments are indeed fiat-reminiscent too (in Greeley’s adopted YouTube parlance, ‘memes’) – notwithstanding Greeley’s apparently wanting to treat contractually extended credit as something less legal or conventional in character than is ‘fiat money.’

In fact both (a) and (b) involve what is socially deemed to ‘count’ for some social purpose or purposes. But what matters here, and what Greeley seems to me to overlook, is that the social purposes to which (a) and (b) respond, though practically related, are analytically distinct – we could change how we do (a) or (b) without changing how we do the other.

In effect, all tradable assets – the stuff of (b) above – involve credit. (Hence the endogeneity of most of ‘the money supply,’ and the associated need of central bank modulation and allocation.) That is evidenced by the ubiquity of such liability-redolent legal terms of art as ‘note’ (‘Federal Reserve Notes,’ ‘Treasury Notes,’ private sector ‘promissory notes,’ etc.), ‘bills’ (‘Treasury Bills,’ Fed ‘dollar bills,’ private sector ‘bills of exchange,’ ‘bills of sale’ tradable as ‘receivables,’ etc.), and ‘bonds’ (‘Treasury Bonds,’ private sector corporate ‘bonds,’ etc.) in commercial and financial settings. 

In contemporary commercial and financial systems, only the central bank’s liabilities, among all of the liabilities sampled above, are socially deemed ‘legal tender,’ and this is pretty much all that calling them ‘fiat money’ now entails. (Hence the Fed’s, investors’, or both’s having to ‘monetize’ – that is, purchase – non-monetary credit instruments (e.g., US Treasury promissory instruments and, indirectly, borrower promissory notes) by swapping Fed promissory notes for them.)    

The practical relation between functions (a) and (b) as discharged in contemporary financial systems accordingly seems to me best viewed not as that of set to disjoint set, but as that of proper subset to set: …

What socially ‘counts’ as legal tender in payment – that is, in discharge of a liability, hence as monetary – under present arrangements also counts as an asset; but not all things that count as assets count in payment, hence as monetary. (They could in theory, just as we could in theory restrict money to non-credit instruments – shiny bricks or crypto whatsits – as we once did; but happily we legislate otherwise.)

For more on the ‘how’s and the ‘why’s here, please see this, this, this and this, along with many of my previous columns in this forum..

One final point: The J.S. Mill quote that that Greeley reports – in which Mill … forgive me … coins the term ‘fiat’ — is a very nice catch. Léon Walras is another classical 19th century figure whose reflections on fiat and fiduciary money are forgotten and hence now unexpected when we find them.

The classicals were far more hep to how money works than we … pardon me again … credit them with. It is just some of their less encyclopedic followers who make them look foolish. Might I suggest we ‘go back to the source[s]’?

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