The Moral Problem Of Fiat Money

The following excerpt comes from a recent article in an online magazine that show the problem of our current fiat financial system.

Dramatically reduced liquidity in August, coupled with sovereign debt concerns in the eurozone, have combined to strengthen the Swiss franc, say strategists

The seemingly unstoppable strengthening of the Swiss franc, which saw €/Sfr reach a record low of 1.01 on August 9 and $/Sfr dip to 0.71 on the same day, should be attributed to reduced liquidity during August and the ongoing effects of the European sovereign debt crisis, according to currency strategists.

"The speed at which the Swiss franc has strengthened is partly due to the fact there is absolutely no liquidity in the market at the moment. It is summer, and a lot of people are away. If there is any sort of big trade in the market, it takes out another couple of big figures. Last week we had €/Sfr at 1.11 on Monday, and on Tuesday afternoon it was at 1.04," says Chris Walker, foreign exchange strategist at UBS in London.

Following the Swiss franc's record strength early last week, the Swiss National Bank (SNB) took further measures to weaken the currency on August 10, announcing it would increase the supply of liquidity to the Swiss franc money market and conduct forex swap transactions in an effort to boost liquidity – a tool not used since 2008. Both €/Sfr and $/Sfr rebounded in response, reaching 1.10 and 0.77 respectively on August 12.

"Political support is building for a form of currency target for €/Sfr. There are of course several structural issues with this, and the SNB will have the final say as to whether this will happen, and indeed what level they would target. Swiss exporters are suffering, and only a target of around 1.20 or above would really help them.

Read more: - Financial risk management news and analysis. Take a 1 month free trial to Risk now!

This is a prime example of the fiat currency "race to the bottom" in which central banks are engaged.

The Swiss Franc has a reputation of being a currency that holds it value relative to other fiat currencies thanks to prudent Swiss financial management.  Now the Swiss central bank is attempting to reduce the value of the currency through forex swaps and other measures like the recent reduction in interest rates.  While one can sympathize with the Swiss regarding exporter competitiveness as other currencies are debauched more rapidly, the situation highlights the problematic nature of fiat money.  A moral hazard exists in both central banking and the political process to use the "elasticity" of the fiat currency for political or economic purposes.  This is where a gold standard shines.  It is not elastic, it adheres to no political or economic agenda, it is honest money that protects our liberty by reducing the opportunity of central planners to attempt to control our destiny.

 Fiat currency is a symptom of the disease.

Gold is the antidote.


  1. Yes PW spot on as always.

    A comment from Foreign Minister Nicolas Maduro

    "The world's financial system, based on the dollar, has entered into a crisis of uncertainty and we are planning to construct a new international monetary system, and especially in South America, protect ourselves from this situation"

    Something wicked this way comes.

    Wake up America our time is short and this collapse will just keep getting worse by the day. All this while our Commander in Chief tours the US in a Bus, and his wife travels the world with friends in tow on Tax payer dollars.

    tic tic tic

  2. Yes Bill, something dark is growing in the shadows, wanting to trample on our remaining civil liberties. Yet when the hour seems dark, light can appear in unexpected moments. I believe we are starting to see a public awakening to the slimy underbelly of both socialism and fascism - and their central banking supporters.
    Despite the agenda to use SDRs to replace the US dollar, the socialists may find it is more difficult to fool all the people than they anticipated.


Post a Comment