Epitaph for the U.S. dollar

It is now getting more and more the clear that the strength of the dollar is not what it used to be. The US dollar has existed for around 100 years but as you look at the history of fiat currency, the US dollar as a fiat currency has already existed 39 years out of an average 80 years. Looking from this angle, it would seem that the US dollar is on its exit path. There are many reasons to indicate so.

The main reason

US dollar has evolved from being an asset-based currency into the currently debt based status. A few hundred centuries ago, money was strictly asset based through gold or silver with an intrinsic worth that you had it close with you all the time; you would be a case of ‘you are what you are worth’ quite literally.

We have had famous explorers such as Marco Polo who traveled around the world using European silver and gold to trade for Asian products like silk and spices, making gold and silver the widely acceptable monetary unit then until now, where daily commerce is performed via coin money. Coin money was also used in trade before the Civil War came on. Time and again in history, gold and silver were the preferred choices of trade, especially when the California gold rush saw a great natural supply to fuel the US economy.

Federal Reserve

The US Federal Reserve came on in early 1900s to streamline and regulate the banking processes. Silver and gold coins were the major form of currency but these were heavy and hard to carry and store. Hence, the Fed came up with certificates to replace the bulk of gold and silver which could be exchanged back to the precious metals. It put up a market value of $20 for every ounce of gold with a switch to paper money as the standard currency based on the gold exchange rate.

Gold and silver coins were considered real money; meaning, you are only as rich as the amount of these precious metals in your possession. This is called asset based money or currency which limited the amount of money in circulation in relation to the amount of gold and silver available. When you have such a currency that is controlled, there is no debt.

Simplicity

When paper money was introduced and became the standard currency form, its worth was based on the amount of gold and silver the nation had; meaning, you could only print one piece of paper money if the Fed had only one piece of gold of that worth.

It was all so simple until President Nixon came on the scene and took the US off of the gold standard.