(It seems I managed to post this in the Political Theory forum, instead of in Economics Questions. Any chance a mod could move this?)
My apologies again, if this is a beginner question, but:
Is fiat currency essentially a form of protectionism? If I have understood this correctly, you can't spend fiat money outside of those areas that accept it? Where as with a commodity backed currency you can exhange the currency for the commodity?
I would be more inclined to call it theft,but from a politicians point of view it could be protectionist.Being able to offer unlimited goodies to voters without any budget constraints protects many in congress..
In economics, fiat currency or fiat money is money backed by government demand for it as legal tender in payment of legal liabilities, such as taxes. It is often associated with paper money because legal liabilities are created and settled by documents which are usually paper. Without government demand for certain kinds of paper as legal tender, such as bank notes, only specie is unlimited legal tender. However this is not universally true, as some currencies, (notably sterling issued by Scottish banks[1]), are not legal tender but are accepted by longstanding confidence.
A bank of issue whose notes enjoy legal tender status by government fiat can use its own notes, making their redemption in specie optional — a matter of the 'monetary policy' of the bank in question. Historically, the institution of fiat currency has preceded and enabled the demonetisation of specie, via a monetary policy decision not to offer payment in specie at par, e.g. by suspension, devaluation or redemption in bullion or foreign currency instead. Eventually this leads to no form of payment, redemption or exchange whatsoever being offered by the issuer and a system of freely floating national currencies, none of which is "redeemable" by fixed amounts of specie or any given commodity.
Libertas est Veritas:Is fiat currency essentially a form of protectionism? If I have understood this correctly, you can't spend fiat money outside of those areas that accept it? Where as with a commodity backed currency you can exhange the currency for the commodity?
Well, all depends on the actual circumstances. If a nation used fiat money and did not print up more whenever it "needed" it, so that you had a stable fiat money supply, then much of the problem would go away. But this never happens, since the whole point in moving to a fiat currency - especially coupled it with fractional reserve banking - is to enable manipulation and counterfeiting - i.e. fraud.
I don't see it as protectionist - after all, what's to stop merchants who are 'outside those areas' from accepting it if they want to? If it's in their interest to do so, they would do so. Unless the State which issued the fiat money made additional laws which prohibited external agents from then exchanging the fiat money they'd accepted for goods or services. So I suppose you could set up a fiat money scheme that was protectionist, but that has nothing to do with the nature of fiat money, in my view.
More info (these overlap to a significant degree):
Video: Fiat Empire
Video: Money as Debt
Video: Money, Banking and the Federal Reserve
Obviously, lotsa books on the subject, including Rothbard's treatment (The Case Against the Fed), and numerous others. This mises article lists several.
None are more hopelessly enslaved than those who falsely believe they are free. - Goethe
Libertas est Veritas:(It seems I managed to post this in the Political Theory forum, instead of in Economics Questions. Any chance a mod could move this?)My apologies again, if this is a beginner question, but:Is fiat currency essentially a form of protectionism? If I have understood this correctly, you can't spend fiat money outside of those areas that accept it? Where as with a commodity backed currency you can exhange the currency for the commodity?
no direct nexus necessarily exists between fiat money and protectionism. however, being able to control the quantity of money on issue allows a nation to indulge in competitive devaluation. having an undervalued currency is a way of furthering mercantilism (encouraging exports and discouraging imports). this tends to create tension between trading partners (think usa and china over the "undervalued" yuan). community concerns over jobs going offshore can easily be played upon by politicians, who willingly suggest trade barriers (imposts/quotas/tariffs) or domestic subsidies as "payback".
if you want to watch another ugly spat brewing over currency valuations - the europeans are hopping mad over the "cheap" us dollar. expect protectionist countermeasures pronto, unless the dollar bounces very smartly against the euro.