Fiat, Representative & Crypto: The Unholy Trinity

Hmmm, what is the bottom line when itcomes to the concept of money?

I do not give a whole lot of thought to the logistics of money. I know I have to have it to function in society and that not having enough of it to meet my financial liabilities puts me in a dicey situation. That is pretty much the extent of my understanding.  Money is money. I like to think it is that simple. But that is decidely not true. There are different kinds of currency.

Fiat Money is a form of currency that is declaredlegal tender. It includes money in circulation such as paper money or coins. Fiatmoney is backed by a country’s government. Okay, that seems straightforwardenough.

But there is also Representative Money.This is government produced money backed by physical commodities such as preciousmetals. Credit cards are the obvious example – forms of payment used in placeof traditional money with the intent to pay at a later date. Okay, that is alittle less straightforward but I get it more or less.

And now, of course, there is Cryptocurrency. This is virtual money, stored in a digital wallet, that does not require a financial institution to verify transactions. No government involvement and no government regulations that apply. The first cryptocurrency, and most commonly traded one, is Bitcoin although various other cryptocurrencies now exist.

So money is money except that it comesin different forms – some I can put in my pocket, some I can spend withoutactually having it and some I can have in my digital pocket. But I have topurchase the digital kind using Fiat or Representative money. SoI am using money to buy money? I am starting to get a headache puzzling throughthis concept.

But wait. This might help. I found anarticle that says Bitcoin is like a casino chip – an exchange mediumfrom one entity to another. That sort of makes sense. But I can only use it inthe Bitcoin casino? Or can I use it in other places? If not, then itsort of is money but sort of is not. Ugh, my headache is getting worse.

Here is an important fact. Banks insuremoney kept in bank accounts against loss. The Bank of Canada, our nation’scentral bank, regulates the industry. Cryptocurrency has no recourse inthe event of a loss. So Fiat money is more secure.

But wait! I found another article that saysbanks are only required to keep a certain percentage of deposits on reserve andcan invest the rest. If all depositors tried to withdraw their funds at thesame time, the bank would fail. I do not like the sound of that.

Oh no, I just found another article thatsays reserve requirements in Canada were removed as of March 2020 for all depositoryinstitutions effectively reducing the reserve requirement to zero. Yikes, isthat true? I wish I had not learned that.

So what is the bottom line when it comesto money? I guess the best I can conclude is that money is a metaphor for acommodity which we all need that comes in different forms, may increase ordecrease in value depending on the circumstances and may or may not be secure.

My headache is now full-blown. Can I buyTylenol with cryptocurrency?

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~ Michael Robert Dyet is also the author of Untilthe Deep Water Stills – An Internet-enhanced Novel which was a double winner inthe Reader Views Literary Awards 2009. Visit Michael’s website at www.mdyetmetaphor.com .

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