Commodity money vs. Fiat money | Financial sector | AP Macroeconomics | Khan Academy 

Fiat money - "Money backed by men with guns"

Great video. I learned something. Something that should be drilled into us in school.

The dollar value literally depends on the reputation of the country. It's based on faith.

The main difference is that commodity money (such as during the bretton woods system) created discipline on countries and states to act with scarce resources effectively. When the US ran deficits to finance war, countries started doubting that the US had enough dollars in gold reserves and started exchanging their currency into physical gold. This mean that you cant just run deficits in the commodity currency system, but you can run as much deficit as you want in the fiat currency system (look at US and Japan, the strong countries....)

This made me make a thorough research on stocks more and have been investing in ETFs and index funds, then other financial commodities, I am 85% into my $400k goal for the year, I want to buy a house buy Christmas to celebrate a great turnaround in my life.

Gold was, is and will probably always be money of *KINGS*

When someone else controls the buying power of your Labor... *THAT IS THEFT*

You missed a huge point about gold and silver holding intrinsic value. You cannot really compare it to fiat currency like you did at the end of the video. You can't just "make" more gold like you can with fiat currency. It took a lot of hard work to get the gold out of the earth, refine it, and mint it into bars. Just something you should've included here in this video

I used to have a $10 silver certificate bill when I was a teenager. I don't know whatever happened to it.

big mistake the guy making this video is making is that he says fiat currency and silver/gold are basically the same. the big difference is that currency can be made at any time thus reducing its value. in order to get more gold or silver you need to mine it which costs currency/resources so you cant dilute the value of that gold or silver because the metal represents what it cost to mine it.

there's a part of the equation you're not taking into account and that is money supply gold has a roughly finite Supply same thing with silver and that gives it a store of value that when you continuously print money into existence it loses its value and the more you have of it eventually it will crash just as all currencies that you can just print into existence and the rich get richer every time the money supply expands the bankers and the corporations and the poor suffer the pain of higher prices until the money does not work anymore it happened before in history it will happen again

thank you very much. I learned a lot. like always, you explained the concepts very clearly and understandable.

Great explanation thx

Its more risky holding cash due to inflation

good work, man!

The Fiat Dollar is an IOU. The older dollars didn't have the name Federal Reserve on it. It just read United States note/Currency or Silver Certificate.

A detailed overview with real examples, love it! Do you think we should anticipate the return of representative money? Or would the society switch to digital unregulated currencies?

Well broken down and illustrated beautifully

Thanks for this nice explanation of commodity money! Now I got it. :)

No, gold and silver are not "just the same" as fiat money in that they're only valuable because they're used for trading. Silver has a bajillion and one uses. It has uses in manufacturing, industry, chemistry, even some alleged medicinal uses. Gold isn't just used for jewelry, it is, as you said, used in electronics and other applications. The thing that also retains their value is supply and demand. You can print more fiat money for almost nothing. It takes a *lot* of work to increase the gold and silver supply through mining. This means you can't easily devalue the currency by inflating the monetary supply.

By the way your explanation pretty good about fiat money thanks to share it🤗

thank you so much! very helpfull video :-)

One important thing not mentioned. Every piece of gold or silver mined and minted means = more value per overground piece. Every dollar printed and brought into existence = currency and every other dollar out there or in your pocket is valued less. Means less purchasing power.

Gold and silver coinage is also called “sound” or “lawful” money which has intrinsic value. The coinage is the asset because it has weights and measures. We used gold and silver because they have 3 necessary elements: Store of Value, a Medium of Exchange and a Unit of Account. When the currency was redeemable the paper was a receipt. In 1963 when Kennedy wrote executive order 11110, he delegated the responsibility of removing silver out of circulation to the Secretary of the Treasury of the IMF (The Keeper of the Fund [Public Law]… not the Treasurer of the United States). That is why currency after 1964 is not redeemable in silver and the language was changed on the currency to reflect that fact. All the currency today is credit and not money. Note, it states it is legal “tender”, not money. It is illegal for a bank to loan you money. They loan you credit. When you make a deposit into a bank you are loaning your credit (currency) to the bank and if you make a withdrawal you are not calling in the loan. Recently, companies have wanted to not take currency and only deal with credit cards or some digital form. By law, if you receive a product or service the company has to accept payment with currency if you choose to pay the debt that way or you are not obligated if you tried to pay with legal tender and they refused. Finally, the law states that the U.S. citizen is responsible for the debt of the dollar, which means all those entitlement programs we borrowed credit and insured the national debt… you owe the payment. Good luck.

Fiat money is debt, it has negative value.

Good video👍

The US dollar gained status as a reserve currency because it is the Petrodollar (used globally to purchase oil), and because of America`s perceived economic strength in modern history. The DEMAND for a currency (thus its value) is dependent upon other nations wanting to purchase that countries goods or use that currency for purchases in general (such as oil). Likewise China and Japan purchasing so many US govt bonds because they believed the US govt able to pay its debts. That view is shifting.

Silver and gold are just arbitrary metals that have been traditionally used as currency in different cultures. They just as easily could have used iron and palladium. However, you can't just print silver and gold. It anchors the currency to something physical and finite.

Thanks mate

thank you so much!

In Black's Law Dictionary 5th edition, the term "real money" is defined as metallic coins, made of gold or silver.

Silver and Gold is valued as money because of their durability as well. They are basically indestructible, so it is the best form of a store of value. This is the best form of trade.

Thanks for the explanation... wonderful presentation

Best explanation I've seen on this subject. Thanks!

Every countrys notes are promissory note

Bring Back Gold and Silver..

This video was made on my birthday.

Taxation and the U.S. Governments monopoly on the production of Dollars is what gives the currency its Value, you have to pay your Taxes in Dollars which only come from one place.

Well, I'd have to disagree to the statement you made that "it's not a huge leap between the commodity backed money and fiat money". As we have all seen in the past 50 years it's actually game changing. Due to the fact that the currency not being backed by anything tangible, the central banks can now issue currency at their will. Not being limited by anything real is generating inflation almost by definition.

Money is valuable❤️

My bad, bro.. Thank you.

Fiat currency is scam

Would you get a fiat car? Might explain the depreciation on them...

Another difference is that gold and silver are resources that can not be produced, you cannot make more than the ammount that exists meanwhile paper money can be produced almost infinetely. This gives enormous power to those who have the right to print money as they control who gets to have more or less money and how valuable the money will become. I think we live in dangerous times because of that

Commodity backed money limits government spending and stabilizes a country's currency.

I want the Commodity money system back.

As an asian, I testify asian values gold

The bogus fiat money is not the same as real money( gold & silver), because the value of real money is within the money itself, unlike fake money that has its value in the hands of few greedy men in New York.

Shouldn't note read LAWFUL TENDER instead of "LEGAL TENDER" just like the $10,000 bill ...on demand as authorized by LAW? Doesn't our Constitution recognize lawful money as silver and gold anyway?

Taxation power is what ultimately gives the government the ability to print fiat money. It creates artificial demand for the government’s debt, which is collected and used to pay back that very same debt. Ever wonder why income taxes and the fed were established at virtually the same time?

The danger of Fiat money is that it is created just as a mint wants, unlike silver and gold. This opens up a possibility to contol the money, and, ultimately, ourselves. In my opinion.

Demand!!!

Didn't expect to hear 3b1b here!

Thumbs up if researching on bitcoin made you want to learn this.

Gold works as currency because it doesn’t tarnish and is stable. Spoilage therefore wouldn’t be an issue with storing funds.

It’s so much more to that story. Then you explained.

I dislike it when people say, “Money only has value because we all believe that it does,” because that simply is not true. You can believe anything you want (that money has value or that it does not have value), but that doesn’t change the fact that it has real value that everyone understands and agrees on-and the amount of money that each bill is worth is printed in ink on it’s pretty little face (well, technically-speaking, it’s printed on all 8 corners of its double-sided, horizontally-shaped body if we’re talking about U.S. currency) 😁

So I recently found some money that was printed before the fiat system was in place, in 1971 . Does that make these bills worth more?

Umm. Federal reserve notes are backed in labor . Or rather by loans with labor or the tax value of labor as collateral .

Wait, hang on. I know this is an old video but did you just explain currency came about b/c people didn't want to haul around the coinage? That it was just a contract on paper saying "Somewhere I have some Morgan Dollars you can exchange for this"? I never understood this until now!

What makes the dollar more valuable then other currencies, for example pund or euros?

The difference is you CAN'T PRINT no gold or silver thought

How about seeds as a commodity money.. think about it grows from trees and easy to carry.. nutritious

Govt: here's a dollar bill People: okay... But what is the guarantee that it is worth anything? Govt: tRusT mE brO..

The gold n silver costs money to get and coin and is respected longer than fiat

Although the paper doesn’t specify the weight. The government could still change a $1 silver coin to only be 0.5g silver from a previous 50g coin for an extreme example.

Read the first paragraph, Article one, Section 10, US Constitution. It is the supreme law of this land.

I'd like to see a currency backed by energy - eg instead of a silver or fiat dollar note, you have a one litre Brent Crude Oil note.

The note is not money. The note is a score for a game that is counterfeited. A debt note is a claim on the future. A silver dollar is a claim on the past I can hold, same with gold. Gold and silver is a precious metal, a claim on the past. The debt note is a claim on future labor that may be repudiated. You are very confused about what money is.

The recession of 2008 foreign investors played a part in stock market recovery. As the market fell by 40%, markets around the world started falling, then foreign investors started buying into the American stock market, hundreds of billions of dollars. Expert Stock market specialist, didn't know what was happening! They asked a foreign born stock market specialist, he said, "foreigners trust America's financial system, it respects property and rule of Law!" Almost 2 trillion dollars poured into the stock market! (Trust) Like NATO and EU. trust and shared values, like supporting Ukrainians!

I still preffer the commodity money...i can turn it in for gold or silver when the dollars hits the floor

Look at the Constitution, Article I, Section 10, first paragraph. It says " No State shall emit bills of credit, make any thing but gold and silver coin a tender in payment of debts". That defines gold and silver as real money, and anything else is counterfiet, and unconstitutional. The govenors of all the States are sworn to uphold the Constitution, and are responsible for enforcing this requirement. Why don't we make them do it? Because most people in the USA, and around the world, are ignorant about how an honest money system is suppose to work.

Money has value because you believe it does.

3Blue1Brown

fiat money is valuable because the amount or value on the money/entry represents peoples promised labour and production

Value is based on your belief.

Is the voice over done by 3 blue and 3 brown ?

“Fiat money” recession/depression money.

I dont understand: allowing banks to create money out of thin air when creating loans, how well is this controlled by the central banks and how? Central banks are not government organisations but are private institutions in many countries: no problem there?

But!!! Think about when we went off of the gold standard towards fiat money...and what was the result afterwards...as a kid...I heard the word inflation.....ALOT!!! to simply print more money because you want to fund a war effort and can do so because the standard has changed didn't mean that we have "skirted" around a consequence...We place value upon many things...I think Pokemon is childs play...my adult son does not...And pokemon had its day monetarily....If you ever you ever wanted to paint a picture of instability(which doesn't mean it will always be bad or difficult) having changed from the gold standard to the fiat system...is that painting.

3 blue 1 brown!!

Commodity > Representative > Fiat

RARITY

At 0:40, you can easily see the date on the $1 silver certificate is "SERIES OF 1928", underneath "Washington, D.C." and the $10,000 gold certificate is "SERIES OF 1934". I expected something like 1913, because that's when the Fed was founded. so, these might not actually represent what "the very first US dollars looked like" (stated at 0:32). --> Guess I'm easily disappointed.

Gold and Silver are not perishable like wheat and oranges, and doesn't become seasonally abundant or scarce. Therefor is a good medium to set the price of other consumables that should change price based on supply/demand and abundance/scarcity.

For commodity money ". . . the thing that you're using for money . . . has SOME value in it's own right." What IS that value, exactly? Does everyone agree on that value? Money is a social institution. You can't really understand money without that essential premise.

Well its still different because gold is rare and paper is abundant. So gold has intrinsic value.

All fiat money only last 90 years .

The problem with gold and silver is hard to find, hard to produce and its limited...

end the fed

We calls it dinar and dirham.

In the intricate anatomy of our global economy, the monetary system plays the role of vital lifeblood. Just as blood nourishes every cell in our bodies, the monetary system impacts every facet of businesses and individuals' lives. Unfortunately, the fiat monetary system has become infected, tainted by manipulation and centralization. Like a diseased bloodstream, it fosters inequality, corruption, and instability, creating barriers to growth and prosperity for businesses and individuals alike.

A federal reserve note which is neither federal nor does it have any reserve

Uh... how did this video miss the most important point of fiat money - that it is BORROWED from the central bank? The borrower at some later time has to get it back and repay his debt to the bank - this is the underpinning of its value more than its status as legal tender. So you can trust in its value because somebody else needs it. It is not just some shared illusion.

"in god we trust" more like "in the Government we trust"

We all work for digital cotton... I thought we already won the war against slavery?!?!?

The dollar was untethered from gold in 1971 I believe.

Bullets and guns are the ultimate form of currency, next to food

The main idea is that Fiat money is much cheaper to print than commodity money, because commodity requires mining medals. Gold commodity would require excessive amounts of gold, and so fiat money is a quicker and cheaper approach because it's derived from trees. However, I think printing fiat money is, in a sense, a form of cheat because that money is not supported by any labor or work. The value of money is meant to exist through a relationship between labor and payment; therefore, simply printing money and declaring it legal makes it "fiat." Fiat, in other words, means that the money was falsely and ilegaly added to the monetary cycle of labor and payment. Money is only supposed to cycle via workers getting paid, people buying products, or investing in assets. Money is not supposed to be secretly printed and distributed. I don't know why the author of this video struggled so much to explain a simple concept. He almost made it harder to understand. By the way, the gold coin with the Native American guy with the printed words, "Liberty" is highly derogative. They didn't experience a spec of liberty during the years of Thomas Jefferson

Americans used to pay other countries/civilizations in silver because they valued it more than gold. I think this was Native Americans and South Americans