Paper currency [i.e. fiat money]
always fails
any country that adopts it--without exception. It is true now as it has
been since the first paper money was issued by the Song Dynasty of
China in the 10th cnetury AD:
The Song Dynasty in China was the first to issue paper money,
jiaozi,
around the 10th century AD. Although the notes were valued at a certain
exchange rate for gold, silver, or silk, conversion was never allowed
in practice. The notes were initially to be redeemed after three years'
service, to be replaced by new notes for a 3% service charge, but, as
more of them were printed without notes being retired, inflation became
evident. The government made several attempts to support the paper by
demanding taxes partly in currency and making other laws, but the damage
had been done, and the notes fell out of favor.
The successive Yuan Dynasty was the first dynasty in China to use
paper currency as the predominant circulating medium. The founder of the
Yuan Dynasty, Kublai Khan, issued paper money known as Chao in his
reign. The original notes during the Yuan Dynasty were restricted in
area and duration as in the Song Dynasty.
However, in the later course of the dynasty, facing massive shortages
of specie to fund their ruling in China,
the Yuan Dynasty began
printing paper money without restrictions on duration. This eventually
caused hyperinflation. By 1455, in an effort to rein in economic
expansion and end hyperinflation, the new Ming Dynasty ended the use of
paper money.
Source;
Fiat Money
Sound familiar? All you need to do is change a few dates and replace
a few names with "Alan Grenspan" and "Ben Shalom Bernancke" and the
text would pretty accurately describe the dollar.
Then let's look at America's first attempt at paper money, Continental Currency, issued in 1775:
American colonists issued paper currency for the Continental Congress to
finance the Revolutionary War. The notes were backed by the
"anticipation" of tax revenues. Without solid backing and easily
counterfeited, the notes quickly became devalued, giving rise to the
phrase
"Not worth a Continenteal."
The French were not far behind, issuing their paper
assignats
in the 1790's. The idea was sound: the revolutionary government had
confiscated all Church lands and would issue certificates worth no more
than the total value of that real estate. Brilliant--paper money that
was actually backed with more than promises! But before long the
revolutionaries began to run the printing presses 24/7 and the
assignats rapidly hyperinflated into worthlessness.
The whole sorry saga is documented in a fascinating treatise that I had the good luck to read in high school. Its title is
Fiat Money Inflation in France by Andrew Dixon White. Read a
summary of it.
The worst example of paper money failing a country in recent times
was the Zimbabwean hyperinflation. In June 2008 the rate of price growth
was 11.2 million percent per year and the country was issuing banknotes
in the denomination of one hundred trillion dollars!
Source:
Hyperinflation in Zimbabwe.
So, insofar as the U.S. dollar--or the euro or the Swiss franc or any other fiat money--is concerned, it's not a question of
if the death knell will toll, but
when it will toll. And when it tolls, it will toll for thee...and me...
Jagor
