When you speak of the mistakes of the fiat system, you actually refer not to the faults and drawbacks of this system itself but rather to its misuse and abuse, and overall mismanagement by governments. Fiat is like a very powerful medication. If you know how to use it and, more importantly, when to use it and in what amounts, it can actually cure the disease. But if you don't, it can do more damage than good
There are some fiat money printing procedures that are made by the government, based on global banking system regulations, and fiat money can be used as a medium of exchange because of the value of the trust contained therein due to the legality of the money as a medium of exchange on the market. Based on the issuance procedure, the value of this fiat money lies in the "trust value" as a medium of exchange because it is legalized by the government. Fiat money depends on the market. Thus, the nominal value of money also depends on markets where the value of trust is determined based on the results of trade rates between countries. Thus, indirectly, the value of money is far different from the currencies of gold and silver. If gold and silver currencies are determined based on "guaranteed assets", then fiat currencies are determined based on exchange rates on international markets. So fiat money only stores extrinsic value.
Unlike the extrinsic money, gold, and silver if the exchange rate is lost, then it is still tangible material value. The value of this material can still be exchanged because it can be used for other needs, such as converted into jewelry, and so forth. While fiat money because the value of the material there is nothing left is only the exchange rate, when there is a decrease in the "value of money trust". then the prices of goods will increase because "trust value" of the money taken. If someone borrows 100 USD, basically he does not borrow money but instead borrows the exchange rate.
What is wrong in the fiat money system is that banks and interest create credit creation by banks, for banks, money is capital, and capital invested has risks, for that risk, there must be returns in return. And the interest on loans and loans is a return for the Bank. It must be understood that granting loans and credit is one of printing money without physical form. The bank will continue to owe money to it because in this way the creation of money will continue to occur. By lending money, the bank is not reducing but increasing its wealth. Though everything recorded by the bank as money is fictitious. The value of money multiplies from its intrinsic value because the central bank operates a fractional banking system, which requires that only a portion of the money in the deposit remain in the value, others can be lent. This means, that money carries out its functions many times and that is why the money supply is greater than the physical quantity of money.
If the customers take the money at the same time (rush) there is a bank collapse (collapse). The reason is because the money is not in accordance with what has been recorded by the bank.
Should third party funds or community deposits in current accounts, savings and deposits do not constitute debt for the bank; however, it functions as a deposit and in the form of investment funds. Investment funds are fully channeled for investment with other bank customers, thereby suppressing the creation of money through credit, because the funds are deposited, and banks cannot use them, so they are only stored in the reserve as a whole, thus creating what is called 100% reserve banking.
The problem is, at certain points central banks and the government need to expand the supply of money (monetary base), and at other points to contract it. That, technically speaking, makes the hard currencies useless (in fact, even detrimental down to outright destructive), while fiat does that in a pretty self-regulated way via credit money (so called endogenous money)
Gold is an asset with high liquidity so there will be no word useless in its use.
Money Demand is the amount of money demanded by the public for three motives, namely the purpose of the transaction, the purpose of guarding and the purpose of speculation. Endogenous money means that the money supply is not something given, but it can be said that there are other variables that also influence the money supply so that it cannot be fully controlled by the central bank authority.
The concept of endogenous money also exists in the system of gold and silver coins only the concept is different from endogenous money in the fiat money system.
Endogenous money in gold and silver money can simply be interpreted that the existence of money is essentially a representation of the volume of transactions that exist in the real sector. So that the higher the capacity and volume of the real sector increases, the demand for money will increase. So the concept of money, money is primarily a medium of exchange or a means, not as a commodity. Gold and silver are used as a standard for value for money and are used for market transactions. In this case, money is created as an intermediary to provide value for commodity prices, or goods and services. The demand for money increases, if the capacity and volume of the real sector increases. The use of gold and silver money avoids the growth of money in circulation that exceeds the value of the production of goods and services, or the growth of the real sector. Inflation occurs if the money supply is greater than what is needed for transactions in the real sector.
In conventional economics, endogenous money (money multiplier) is the creation of money through banking mechanisms. The money supply is endogenous due to a process called deposit multiplier, in which the role of interbank in creating loans into deposits and creating deposits into reserves. In this case, the bank's role is quite large in how much it regulates the supply of credit and deposits, then the supply of credit money can be endogenously determined by the bank in achieving its interests. In principle, the bank is a profit-oriented business entity by trying to avoid various obstacles and take taking advantage of existing opportunities, often using new financial instruments to utilize funds in their reserves. Through its fractional reserve banking, endogenous money is then allocated to create growth. In fact, conventional endogenous money does not allocate resources efficiently, but pushes asset prices up, and makes the world continue to have increasing debt, so that the total amount of internal and external exceeds the amount of money available (fictitious)
