Useless But Not Worthless

By Keith Weiner

Let’s continue to look at the fiasco in the franc. We say “fiasco”, because anyone in Switzerland who is trying to save for retirement has been put on a treadmill, which is now running backwards at –¾ mph (yes, miles per hour in keeping with our treadmill analogy). Instead of being propelled forward towards their retirement goals by earning interest that compounds, they are losing principal. They will never reach their retirement goals. If you disagree, we encourage you to model it.

We say “fiasco” because living in retirement in Switzerland is like trying to live on a farm which does not grow crops. The farmer has to sell off pieces of the farm to buy groceries. As the Swiss retiree has to sell off pieces of his accumulated savings. Except the bank is also consuming his savings at -0.75%. It’s like a negative race.

Quantity Theory of Money

This disaster provides an interesting test of the quantity theory of money. Since mid-2013, the quantity of Swiss francs (as measured by M0) was around 380 billion. It went sideways until the end of December 2014. In January 2015, it was up to 450 billion. That move in itself, in 2-3 months, was 18%. But it first went off to the races, after that, hitting 561 billion by May 2017. In just over two years, it rose another 25%. Prices in Switzerland did not rise commensurately with these increases in the quantity of francs.

But we are interested in matters monetary. We want to see how the franc fared against the dollar, from which it ultimately derives (the US M0 admittedly rose faster during this period—44%). Here’s a graph of the price of the franc against Swiss M0.

Continue reading Useless But Not Worthless

What Is Fiat Currency?

By Steve Saville

The term “fiat” is often associated with irredeemable-paper or electronic currency, but existing only in paper or electronic form is not the defining characteristic of fiat currency. In fact, paper or electronic currency is not necessarily “fiat” and hard commodity currency can be “fiat”.

Regardless of the form it takes, fiat currency is simply currency by government decree. If the government dictates that a certain ‘thing’ is money and must be accepted in payment for goods, services and debts, then that ‘thing’ is a fiat currency.

Obviously, all of today’s national currencies are fiat currencies. Not so obviously, gold was a fiat currency during the Gold Standard era. It could be claimed — without any argument from me — that during the Gold Standard era gold would have been the most widely used currency without the government making it so, but this is beside the point. In the situation where the government has commanded that gold is money, gold is a fiat currency.

Also not so obviously considering what has been written on the topic in other places, Bitcoin is not a fiat currency. If anything it is the opposite of a fiat currency, because it was created by the private sector and is not supported in any way by the government. This doesn’t mean that Bitcoin is a good currency, as there is a lot more to being a good currency than being outside the direct control of government.

Summing up, people should be careful when applying the word “fiat” to currency/money. The word is routinely used to mean irredeemable or non-physical, but that’s not what it actually means.

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Venezuela Devalues Bolivar More Than 80% in Currency Auction…

By Anthony B. Sanders

Venezuela must be taking the books/movies “The Hunger Games” literally.

(Bloomberg) — Venezuela’s bolivar plunged more than 80 percent as the central bank restarted currency auctions for the first time since August as part of its efforts to ease a severe shortage of dollars and clamp down on hyperinflation.

One dollar bought about 25,000 bolivars at the auction, compared with 3,345 bolivars at the last so-called Dicom sale about six months ago. The rate announced Monday is still much stronger than in the black market, where individuals and businesses without access to the official markets pay about 225,000 bolivars per dollar, according to

Continue reading Venezuela Devalues Bolivar More Than 80% in Currency Auction…