Faith In Fiat
You may well wonder, is it a shrine or a tomb? That all depends on how you perceive money in its current form.
After the 2008 financial crash, it became clear that something was amiss. In the UK, bank bailout packages of £500 billion were put in place along with a raft of austerity measures. We asked ourselves, why are we, the general public, paying for the risky money manipulations of a scheming financial sector?
From our perspective, the increasingly visible inequalities in wealth, housing, health and education led us to try to understand the root causes. Could it be our current global monetary system? Not being economists, this was a difficult concept to get our heads around.
Through Faith in Fiat, we aim to make people think about their own positions. Considering how devastating this crash has been for the majority of people, we should ALL be asking questions.
We studied countless academic papers, documentaries, blogs and newspapers, in an effort to try to understand the connection between inequality, the monetary system, capitalism and democracy.
As we now understand it, Fiat currency replaced commodity money, which once took its value from a physical material such as gold. The Gold Standard Act in Britain was abandoned for good in 1931, and in the U.S. in 1971 (known as “the Nixon Shock“). Fiat money is declared legal tender by a government. Its value is allowed to fluctuate in response to foreign exchange markets. In other words, Fiat money itself has no intrinsic value.
Some argue that the departure from the Gold Standard marked the beginning of the financialisation of economies around the world. Suddenly, there were opportunities to make vast amounts of profit from money speculation as opposed to saving money, which became more susceptible to depreciation. Today, most of the money in our economy is created by banks, in the form of bank deposits. Banks create new money when they make loans. These are just numbers in your account, effectively money created from nothing. Just 3% of the money in the economy is created by the government, whilst 97% is created by banks. So, as we understand it, money transformed from something which facilitated business to an actual business in itself, a privately-owned enterprise upon which all other parts of the economy rely (such as the Fed).
Where once money was mainly invested in the production of something concrete, now it had a whole area dedicated to moving money around in order to make a profit, making money without actually producing anything. There was a proliferation of hedge funds: people with money and access could now make serious money, whilst the rest of the population paid the price of fiat currency instability and low interest on savings. The financial sector, and people with the means to access its products, saw the greatest accumulation of wealth.
And yet, consumer culture is still sold to us as some kind of path to happiness. The more stuff we have, the more we accumulate, the better we will feel. Media conditions people to aspire to a life of luxury and material wealth. Imposed austerity measures contradict the expectation of a consumerist lifestyle and have the average person caught between a rock and a hard place. (We suspect that this could be one factor which sparked the 2011 riots in England.)
Even though fiat money and capitalism are recent human constructs, we are now unable to imagine life without them. Perhaps, we need to use our imaginations a bit more in order to really make a break from current systems.