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Money is no longer the means of exchange. Well... technically it is, but also it has become something else. In the same manner that real money (commodity-based) was a commodity first and money second, fiat money is a wealth-shifting tool … for enriching selected people and powers first and a means of exchange second.

If you are to remember anything from this lesson, remember that. Current money is a scam, plain and simple.


You intuitively understand the meaning of the word fake. Fake is something that appears to be real but it isn’t. It is a bad quality copy. It is something that was sold to you as good and it is bad. Would you accept a fake Toyota? Or a fake McDonald hamburger? Or travelling on a fake Boeing 707? Of course not! You are paying for the real thing and you expect to get the real thing. Then, why are you accepting fake money?

Simple, you do not know better. Worse. This was done by design and drilled into you mind. You have been brainwashed and you don’t even know it.

Economists do not like to speak about the origins and concepts behind our current money. In the rare occasions when they do, they speak about fiat money… and you accept this term joyfully. Why? Because the term fiat is just another term for fake, albeit politically correct.

If you take a look at any dictionary you will see that the term fiat means: an arbitrary decree, sanction, order or pronouncement. So, when you couple the words fiat and money you get:

Money that was brought into existence by an arbitrary decree, sanction, order or pronouncement.

Does this sound like something you would trust?

To better understand how ridiculous these two words sound together, think of:

  • Fiat elephant: an elephant that was brought into existence by an arbitrary decree, sanction, order or pronouncement or
  • Fiat gravity: gravity that was brought into existence by an arbitrary decree, sanction, order or pronouncement or
  • Fiat house: house that was brought into existence by an arbitrary decree, sanction, order or pronouncement or
  • Fiat disease: disease that was brought into existence by an arbitrary decree, sanction, order or pronouncement

Do any of these sentences make any sense to you? Of course they don’t! Yet, when we hear the term fiat money, we accept it without questioning.

Fiat money is nothing but money you are forced to use because I say so. Well, not exactly me, but governments say so.

That’s correct. Fiat money is money because THEY say so. That’s it! There is nothing more to it. That’s the whole thing.

But if something is money just because the government says so, it means that such money inherits the trust people have in the government. Allow us to put it in this other way: the amount of trust you place in the government is exactly the same amount you are placing on their fiat money! Scary, isn’t it?

But if historically speaking we started with real, commodity-based money, how did we get here? The path from real money to fake money is paved with debasement.


As we mentioned in our previous lesson Real Money For A Real Economy, all governments debased money at one point or another. So, what is the relationship between money debasement and fiat money? Glad you asked. The answer is simple:

Fiat money is fully debased money.

The following graph should provide a better explanation (emphasis on should):

 Real Money versus Fiat Money

On the vertical axis we find a percentage of precious metals in a coin. It goes from 100% (pure gold) to 0% (pure copper). On the horizontal axis, we find the percentage of lost value. It goes from 0% (no loss of value) to 100% (worthless). The process of going from 0% value lost to 100% is called debasement.

As an example in the picture we selected a spot for a gold coin at roughly 70% gold content. This means that such a coin has lost 30% of its real value (remember that precious metals were valued by weight). As we go down in the percentage of gold content, we reach 0%. At this point, the value of such a “gold coin” is zero. This is so because it contains no gold!

Such a coin is the perfect example of fiat money. Money that does not contain any commodity the market would be interested in using as money. Therefore, its real or commodity-money value is exactly ZERO.

This creates a question. If such a coin is actually (not virtually) worthless, how is it possible that if you go to any country in the planet you can purchase stuff with such coins? Obviously they do have some value. This is correct. It is just that the value they have is not commodity-based, it is fiat-based. In other words, such coins have some value just because a government says that they do.

All your coins are fiat-based, with a few minor exceptions. One such exception occurred recently when copper prices skyrocketed. Some governments had 1 cent coins made entirely of copper. As the price of copper increased dramatically, it cost the government more money to purchase raw copper to mint 1 cent coins, that the amount of copper that 1 cent coin would purchase! In this strange circumstance, your 1 cent coin actually became a commodity-based money for a fleeting moment. But never fear, the government is near. In those countries where this did happen, how did the government react? They simply stop minting 1 cent coins because they have “lost their value”!!! Yes, I am not making this stuff up. The only point in time when a fiat money converted into commodity-based money and started to have real value, the government intervened to ensure it could not be used!

Fiat coins are minted by governments for two reasons:

  1. Because we need a way to fraction large money units into smaller units. For example, you would not be happy if everything would be rounded up to one Euro or Dollar or Swiss Franc bill.
  2. To maintain the illusion that fiat coins have any commodity-based valued money.

As a matter of fact, many countries produce coins at a loss. Such is their appeal as propaganda tools that it is worth having them at a loss. People like being able to feel and touch money. But then again, governments will be governments.

Originally fiat coins were made of some sort of cheap metal, for example nickel or copper. When these metals became too expensive, they started using galvanized stainless steel.

Note: a galvanization process is an industrial method to cover almost any metal with another one. And so, they made cheap coins with stainless steel and then they cover them with nickel or brass… all for a low, low price!

When even this method turned out to be too costly, they switched to plain galvanized steel. When even this process became too expensive, they switched to steel. And when even this one resulted too costly, the used the “sandwich” technique.

Note: this technique is simple. During the processing of steel there is a leftover mostly composed of rust and sand. This is literally waste that has no further use and nobody wants. This refuse was used as the core of coins, which were subsequently laminated with steel (i.e. a thin layer of metal was placed on top).. To the best of our knowledge, this was developed in Argentina in the 60s. Yet another reason for this country to be at the forefront of the world-wide economic debacle.

Now days it is anybody’s guess what’s inside a coin. If you would like to attempt a fun science project, cut a few in half and check what are they actually made of.

Note: please see the Glossary if you are unfamiliar with certain words.

Continue to Fake money for a fake economy - Part 2


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