In the future, will fiat currencies be necessary in the world?

[Hell-raiser]

As much as I agree with the first part of your post about a governmentally controlled crypto being just another form of fiat (since this is what I have been saying here for years myself), I as much disagree with the second part of it where you claim that the economy doesn't need fiat. It was the case a few centuries ago when, as you correctly noted, commodity-based currencies had been used universally. Actually, they were based on precious metals (mostly silver if we are talking about Europe), but this is irrelevant to the point in question. In the simplest of terms, economies didn't switch to fiat currencies just for kicks. In fact, it was inevitable, kind of objective necessity if you please. Hard currencies were an insurmountable obstacle to a steady economic growth, so no surprise that such currencies were completely abandoned eventually.

In other words, the modern global economy, given its complexity and the level of interdependency between its parts, simply cannot function on hard currencies as they will wreak havoc in financial settlements throughout the world if we assume for a moment they get introduced again.

Let's set things straight. It had already been tried and didn't work (with gold as money). Any deflationary currency (gold, bitcoin, whatever) would be massively taxing real economy. People who have a lot of tokens representing money would be profiting from just holding them, that is by doing nothing, from people who actually create goods and services, bringing value to the table. Fiat is not perfect but what it is perfect at is taking from idlers a competitive advantage which they otherwise would have just because they happen to be rich.

There is nothing wrong with using a deflationary currency such as gold. The reason why governments moved away from gold is not because it wasn't working. There were 2 issues. Because they needed to buy it on the open market, they could not maintain adequate reserves for what they wanted to spend on, and they had to pay debts with the value that was borrowed. By moving to fiat currencies, they could tax the populace by printing more currency, hence more for whatever spending they wanted to do, and secondly, they could inflate away the value of debts.

Inflation or deflation is only bad if it is unpredictable. Any argument made against deflation can be made against inflation. Why would one borrow money if they would have to pay back more in the future (argument against deflation). Why would one lend money when they are going to get back less in the future (argument against inflation). Why would one buy goods and services when they know they can get it cheaper in the future? If prices are going down because the value of the currency is going up, then one is still transferring the same value to the seller at a lower price. Why would a seller sell a good or service now, when they can sell it in the future for more dollars? 

But besides that, crypto does not have to be deflationary. Ether is inflationary.

When I referred to crypto being deflationary, I didn't mean its supply being deflationary or otherwise. Strictly speaking, Bitcoin is also inflationary, at least if we discard the high probability that right now the total number of coins available for trade and commerce is diminishing due to "wear and tear" (coins being lost, stuck as dust, burned alive, etc). I use the term deflationary in a broader sense of not being able or sufficient to satisfy the needs of a growing economy. Whoever tries to challenge this point (that there should be enough monetary supply to support such growth at all times) is either clueless (ok, let's call them poorly informed to not overstep the bounds of propriety) or has something else in mind (read has an agenda).

And no, deflation is not inflation with a minus sign attached to it, though I understand why people think it is. In fact, this topic has been beaten to death already but it still comes up pretty regularly. You bring up the same age-old arguments that have been refuted numerous times even on this forum. A hint, producers profits are non-linearly dependent on inflation (deflation) rates, so deflation is directly destructive to an economy and that has nothing to do with its predictability or lack thereof.

[LyQaN]

Fiat currency is for sure necessary for our day to day transactions.It is the most trusted and safest way to do our transactions.It can used in a mall and even in a small store where we don't have internet connectivity for digital transactions.So yes fiat currency is necessary in the world.

[creeps]

Fiat currency is for sure necessary for our day to day transactions.It is the most trusted and safest way to do our transactions.It can used in a mall and even in a small store where we don't have internet connectivity for digital transactions.So yes fiat currency is necessary in the world.

I used to live with fiat money for almost 25yrs of my life, fiat money is there to makes me more liquid everyday. This is necessary because we need to transact easily, more convenient in depressed area and of course its more valuable for ordinary people. But hopefully, cryptocurrency will have his break in major markets so we can now adopt new changes that can help us to be better in the future.

[Eijrafarm]

Yes ofcourse, even if the future is long I know that fiat will be a very useful tool for payment. Since some people does not know on how to use computers which is the disadvantage of having mo fiat money.

[ulhaq]

As much as I agree with the first part of your post about a governmentally controlled crypto being just another form of fiat (since this is what I have been saying here for years myself), I as much disagree with the second part of it where you claim that the economy doesn't need fiat. It was the case a few centuries ago when, as you correctly noted, commodity-based currencies had been used universally. Actually, they were based on precious metals (mostly silver if we are talking about Europe), but this is irrelevant to the point in question. In the simplest of terms, economies didn't switch to fiat currencies just for kicks. In fact, it was inevitable, kind of objective necessity if you please. Hard currencies were an insurmountable obstacle to a steady economic growth, so no surprise that such currencies were completely abandoned eventually.

In other words, the modern global economy, given its complexity and the level of interdependency between its parts, simply cannot function on hard currencies as they will wreak havoc in financial settlements throughout the world if we assume for a moment they get introduced again.

Let's set things straight. It had already been tried and didn't work (with gold as money). Any deflationary currency (gold, bitcoin, whatever) would be massively taxing real economy. People who have a lot of tokens representing money would be profiting from just holding them, that is by doing nothing, from people who actually create goods and services, bringing value to the table. Fiat is not perfect but what it is perfect at is taking from idlers a competitive advantage which they otherwise would have just because they happen to be rich.

There is nothing wrong with using a deflationary currency such as gold. The reason why governments moved away from gold is not because it wasn't working. There were 2 issues. Because they needed to buy it on the open market, they could not maintain adequate reserves for what they wanted to spend on, and they had to pay debts with the value that was borrowed. By moving to fiat currencies, they could tax the populace by printing more currency, hence more for whatever spending they wanted to do, and secondly, they could inflate away the value of debts.

Inflation or deflation is only bad if it is unpredictable. Any argument made against deflation can be made against inflation. Why would one borrow money if they would have to pay back more in the future (argument against deflation). Why would one lend money when they are going to get back less in the future (argument against inflation). Why would one buy goods and services when they know they can get it cheaper in the future? If prices are going down because the value of the currency is going up, then one is still transferring the same value to the seller at a lower price. Why would a seller sell a good or service now, when they can sell it in the future for more dollars? 

But besides that, crypto does not have to be deflationary. Ether is inflationary.

When I referred to crypto being deflationary, I didn't mean its supply being deflationary or otherwise. Strictly speaking, Bitcoin is also inflationary, at least if we discard the high probability that right now the total number of coins available for trade and commerce is diminishing due to "wear and tear" (coins being lost, stuck as dust, burned alive, etc). I use the term deflationary in a broader sense of not being able or sufficient to satisfy the needs of a growing economy. Whoever tries to challenge this point (that there should be enough monetary supply to support such growth at all times) is either clueless (ok, let's call them poorly informed to not overstep the bounds of propriety) or has something else in mind (read has an agenda).

And no, deflation is not inflation with a minus sign attached to it, though I understand why people think it is. In fact, this topic has been beaten to death already but it still comes up pretty regularly. You bring up the same age-old arguments that have been refuted numerous times even on this forum. A hint, producers profits are non-linearly dependent on inflation (deflation) rates, so deflation is directly destructive to an economy and that has nothing to do with its predictability or lack thereof.

I think you are the one that needs to review your economics. I hope this doesn't come off negatively.

There are only 2 contexts in which inflation/deflation are used - in the traditional economic sense, and to refer to an increasing or decreasing supply of the currency (which is a new use since crypto came into the mainstream). Bitcoin is deflationary in both of these completely different definitions. When you say that "strictly speaking", bitcoin is inflationary, I can only assume that you mean that the supply is currently increasing? That would be correct, but I was looking at long-term outcomes and whether it is economically viable.

To use deflation to mean anything else is just wrong. You say "deflationary in a broader sense of not being able or sufficient to satisfy the needs of a growing economy". That is a very common misconception in economics. "That there should be enough monetary supply to support such growth at all times" is flat out wrong. Economic growth is based on productivity and is not held back by monetary supply. This specific argument you make was analyzed in great detail and refuted in Rothbard's book The Mystery of Banking. I'm sure you will find the refutation in many other books/places as well.

Producers profits are not dependent on inflation rates. I'd like to know what your source on that is. And any references on this forum I'd be happy to look at. Inflation/deflation are monetary phenomenon. Have you studied Nobel Prize winner Milton Friedman's books/discussions on monetary policy and inflation?

There is a common notion that deflation is directly bad for the economy because in the inflationary milieu created by the Fed, deflation has only occurred in depressions. That is due to idiosyncracies of the current system, not inherent negative features of deflation.

Even look at books by Charles Wheelan. He goes over why the problem is not inflation/deflation, but unexpected deflation/inflation. 

[sunflower_11438]

when the majority of people in a country already understand and accept cryptocurrency, it is possible that fiat currency is no longer needed.

[surfer43]

in the future, will there really be a need for fiat currency? Government can collect taxes in crypto, determine how to allocate it, and spend it in crypto. Ppl can receive salaries and do all commerce using crypto. Loans can be done in crypto. Fundraising can be in crypto. Sure, problems have to be worked out in terms of scalability, does it have to be completely decentralized, etc, the value has to become more stable. But theoretically, is there any reason to have fiat in the future?

It has been established that governments can now do taxation without representation by printing more money (which is a tax on everyone holding the currency), instead of trying to get a bill passed that allows it to increase the tax rate. With crypto this would be no more. All increased taxation would have to pass a vote.

From an economic standpoint, the idea that a country can stimulate its economy by adjusting interest rates is tenuous. There is just as strong an argument that lowering interest rates has caused speculation and bubbles, with calamitous results. In a crypto market economy, capital will flow from where it is needed less to where it is needed more.

Your point is not actually that acceptable. Fiat currencies are a must for the world to carry on its financial transactions and i think without any fiat currencies the normal financial transactions would be hardly not possible because noy everyone is able to use the cryptos ot the digital means of payments. Fiat currencies are centralised and none of the government would allow the decentralised currencies to rule over centralised currencies.

[Hell-raiser]

When I referred to crypto being deflationary, I didn't mean its supply being deflationary or otherwise. Strictly speaking, Bitcoin is also inflationary, at least if we discard the high probability that right now the total number of coins available for trade and commerce is diminishing due to "wear and tear" (coins being lost, stuck as dust, burned alive, etc). I use the term deflationary in a broader sense of not being able or sufficient to satisfy the needs of a growing economy. Whoever tries to challenge this point (that there should be enough monetary supply to support such growth at all times) is either clueless (ok, let's call them poorly informed to not overstep the bounds of propriety) or has something else in mind (read has an agenda).

And no, deflation is not inflation with a minus sign attached to it, though I understand why people think it is. In fact, this topic has been beaten to death already but it still comes up pretty regularly. You bring up the same age-old arguments that have been refuted numerous times even on this forum. A hint, producers profits are non-linearly dependent on inflation (deflation) rates, so deflation is directly destructive to an economy and that has nothing to do with its predictability or lack thereof.

I think you are the one that needs to review your economics. I hope this doesn't come off negatively.

No, it doesn't. I somewhat got used to that thing. There's a lot of confusion about deflation and its effects on the economy, so I consider it kind of natural phenomenon.

There are only 2 contexts in which inflation/deflation are used - in the traditional economic sense, and to refer to an increasing or decreasing supply of the currency (which is a new use since crypto came into the mainstream). Bitcoin is deflationary in both of these completely different definitions. When you say that "strictly speaking", bitcoin is inflationary, I can only assume that you mean that the supply is currently increasing? That would be correct, but I was looking at long-term outcomes and whether it is economically viable.

So am I and no, it is not economically viable. If Bitcoin was to completely replace fiat somehow one day and we discard all possible transitory effects as well as Bitcoin's current shortcomings (like transaction costs, confirmation times, etc) as inconsequential, the current level of economic cooperation and development mediated by fiat won't be sustainable, end of story. In effect, that would mean that the world economies would collapse in no time, and given that there are over 7B people now living, the things will quickly develop according to the Mad Max scenario, if not worse than that. Let's assume that the use of Bitcoin is forced upon humans by an almighty entity (or aliens) and there is no way back to fiat money. Just in case, you can substitute any other hard asset for Bitcoin in this hypothetical environment. It will still end in a disaster.

To use deflation to mean anything else is just wrong. You say "deflationary in a broader sense of not being able or sufficient to satisfy the needs of a growing economy". That is a very common misconception in economics. "That there should be enough monetary supply to support such growth at all times" is flat out wrong. Economic growth is based on productivity and is not held back by monetary supply. This specific argument you make was analyzed in great detail and refuted in Rothbard's book The Mystery of Banking. I'm sure you will find the refutation in many other books/places as well.

Let's just agree to disagree. This topic is of no particular interest to me (it is the same stuff over and over again), nor am I interested in verbal gymnastics.

Producers profits are not dependent on inflation rates. I'd like to know what your source on that is. And any references on this forum I'd be happy to look at. Inflation/deflation are monetary phenomenon. Have you studied Nobel Prize winner Milton Friedman's books/discussions on monetary policy and inflation?

The fact that you need sources and cling to sources yourself says pretty much all. You are on your own here (and there).

[fauzan Ichsan]

in the future, will there really be a need for fiat currency? Government can collect taxes in crypto, determine how to allocate it, and spend it in crypto. Ppl can receive salaries and do all commerce using crypto. Loans can be done in crypto. Fundraising can be in crypto. Sure, problems have to be worked out in terms of scalability, does it have to be completely decentralized, etc, the value has to become more stable. But theoretically, is there any reason to have fiat in the future?

It has been established that governments can now do taxation without representation by printing more money (which is a tax on everyone holding the currency), instead of trying to get a bill passed that allows it to increase the tax rate. With crypto this would be no more. All increased taxation would have to pass a vote.

From an economic standpoint, the idea that a country can stimulate its economy by adjusting interest rates is tenuous. There is just as strong an argument that lowering interest rates has caused speculation and bubbles, with calamitous results. In a crypto market economy, capital will flow from where it is needed less to where it is needed more.

Your point is not actually that acceptable. Fiat currencies are a must for the world to carry on its financial transactions and i think without any fiat currencies the normal financial transactions would be hardly not possible because noy everyone is able to use the cryptos ot the digital means of payments. Fiat currencies are centralised and none of the government would allow the decentralised currencies to rule over centralised currencies.

right, it's actually bitcoin as a complement to fiat currency. meaning that essentially fiat currency becomes the main transaction tool, if btc will shift it, i think it takes a long time, because bitcoiner is currently only 1% of the total world population

[jonaire99]

Many of the countries today are not yet prepared for the implementation of cashless transaction and most of the people are still fiat as their currency for transaction so fiat is still necessary in the whole world until all areas are digitized. The adoption of digital currency and the cashless transaction will eventually make the fiat unnecessary in the future.

[Akoldi_ibk]

Worldwide adoption will definitely render fiat useless, but I don't see that happening anytime soon. Come to this part of the world and you will see that it will take years of intensive infrastructural development for the people to come with terms with digital age. Fiat will still be in use for a long in some countries due to this factor. Another great challenge is the governments. They will not give in easy to crypto rulership.

[Ranly123]

in the future, will there really be a need for fiat currency? Government can collect taxes in crypto, determine how to allocate it, and spend it in crypto. Ppl can receive salaries and do all commerce using crypto. Loans can be done in crypto. Fundraising can be in crypto. Sure, problems have to be worked out in terms of scalability, does it have to be completely decentralized, etc, the value has to become more stable. But theoretically, is there any reason to have fiat in the future?

It has been established that governments can now do taxation without representation by printing more money (which is a tax on everyone holding the currency), instead of trying to get a bill passed that allows it to increase the tax rate. With crypto this would be no more. All increased taxation would have to pass a vote.

From an economic standpoint, the idea that a country can stimulate its economy by adjusting interest rates is tenuous. There is just as strong an argument that lowering interest rates has caused speculation and bubbles, with calamitous results. In a crypto market economy, capital will flow from where it is needed less to where it is needed more.

Fiat currencies are basis for a countries identity. Even in the future where we hope to be a cashless society would exist, Fiat will still live yet alone be used as a basic way of payment on transactions which would not include digitals for payments.

[Johnyz]

Many of the countries today are not yet prepared for the implementation of cashless transaction and most of the people are still fiat as their currency for transaction so fiat is still necessary in the whole world until all areas are digitized. The adoption of digital currency and the cashless transaction will eventually make the fiat unnecessary in the future.

Cashless society will not happen, because government will not support that. They still need fiat money to make corruption so we have no choice but to still use fiat money. Cash is necessary since this is what we need in our everyday living, maybe cryptocurrency will be an alternative for some people but never to eliminate cash.

[BertoloyBTC]

As of now fiat currencies are still necessary in the world because it is the usual currency and if time will come cryptocurrency will be implemented and accepted and use all over the world ,but still fiat currency could still be of use, for the reason that there are places which are not yet digital access or internet acessessibility.

[Kimi80]

Existence of fiat currency is still unquestionable. Crypto currency have everything that is needed to replace fiat in the future. Banks and governments don't care if it will be fiat or crypto, they will benefit out of whatever it is.

[umrohyuk]

Yes, these are. Digital currency will never replace conventional money/currency even though now is coming a trend toward digital currency such Crypto. It will be only an alternative currency, because it has much limitation in creating this. It is only can be used in certain transactions. We know that crypto offers a simplicity but conventional or fiat currency is more effective and secure in many cases.

[Kelvinid]

I think, fiat will become obsolete in the future. When the world goes into the era of global trade, people need more efficient currencies than fiat currencies.

Maybe it will in the future.But for now,fiat currency is still very helpful to us knowing it can used to buy all our wants and needs.I think we can never replace it easily especially for those close minded people they will still stick to fiat currency.

[Ziskinberg]

As of now fiat currencies are still necessary in the world because it is the usual currency and if time will come cryptocurrency will be implemented and accepted and use all over the world ,but still fiat currency could still be of use, for the reason that there are places which are not yet digital access or internet acessessibility.

Yes.You have your point too.It's not easy to replace fiat currency with cryptocurrency because there are some people particularly living in the provinces who don't even know what cryptocurrency is since they have no internet connections in their area.Fiat currency will still be of high necessity for them.

[romero121]

However the country gets developed, there is a need for the use of physical currency, because each and everyone won't find convenient with cryptocurrency. Another thing everyone will not be educated, so it is hard to expect each and everyone using cryptocurrencies even in the long run. So physical currency is a must.

[Arlibtchunt2018]

Fiat is already part of our life. It is not something that we can change easily. I think in the future we could adopt cryptocurrency but we can't remove fiat in the economic system.