[Guvante]

Don't believe the lies they say about fiat currencies in crypto circles. Currency is way more complicated than they lead you to believe.

After all fractional reserve banking has existed since before currency did. And if you have fractional reserve banking you aren't "back up by something" unless you count the credit of the bank as something. Given that is the literal definition of fiat currency (backed by the full faith and credit of the United States) that means that it is way more complicated than the gold standard.

To give a modern example (the gold standard no longer exists anywhere) many countries have a fixed currency backed by the USD. Since fractional reserve banking is a thing there too it isn't like the country is holding onto $1 USD for every $1 USD equivalent of currency. However it isn't like there isn't a relationship so the source of that relationship is government exchange. You can exchange $1 USD equivalent of currency for $1 USD.

Now we get to the real wrinkle. How can countries have higher inflation than the USD if they are locked with USD? (Which they objectively have) By simply restricting the amount of currency that can be exchanged for USD. This can be hand waved around pretty easy "we have a shortage" or "it is difficult to obtain that much". Now you have a fiat currency in reality but technically it is a backed currency.

To be clear it isn't like ditching the gold standard was without downsides, this is just long enough to point out that broad statements like "backed by anything" fail to account for the reality of backed currencies in a modern financial system.

[notch656a]

>After all fractional reserve banking has existed since before currency did.

We don't even have fractional reserve banking. There is no reserve ratio, it's 0. Bernanke's own published book states it is only fractional reserve banking when it is required to keep a fractional reserve.

[Guvante]

I am talking about the consequence of fractional reserve banking. Specifically that money is made by banks to some amount. Also I think saying "we don't have fractional reserve banking" is needlessly splitting hairs. The requirements are just more complicated than "hold onto X% of deposits".

[cft]

My statement was that the currency (in this example, USD) until 1971 has always been at least partially backed up by something beyond control of any single government (gold). That was the whole reason of Nixon's speech and abolishing gold convertibility on August 15, 1971 [1]. This regime existed since at least Ancient Greece, but probably longer. I have no empirical reason to believe that the currency system of last 50 years is more stable than the one that existed for 2000+ years ( I think substantially longer).

1. https://www.youtube.com/watch?v=iRzr1QU6K1o

[Guvante]

You are ignoring my point because it wasn't what you wanted to say. "At least partially backed up by" is a meaningless statement. Certainly everyone agrees that US wasn't holding onto the amount of USD that existed as gold. So what percentage was it? Was that percentage stable?

The answer to both of those questions was no. The actual amount of currency in circulation (including balance sheets) was certainly well in excess of what the US was holding in reserve.

You could say that by offering gold at a rate you fix the value of the currency but I already covered how that is nuanced.

The reality of course is the reason we had trades for reserves and reserve requirements were to provide faith from consumers that the currency was worth something. I don't think anyone can claim that USD isn't worth anything today.

[notch656a]

Switzerland's currency was linked to gold all the way up to like '99