Is Fiat Money The Cause Of Hyperinflation?

First, we will discuss what is meant by fiat money. Fiat money is not a Fiat brand car, but it is a form of medium of exchange used in buying and selling. It is a type of exchange tool without real value or material backing such as gold. Before the 1970s, the Brighton Woods system pegged the US dollar to gold, but after this system collapsed, many currencies around the world switched to fiat money.

For example, we can compare it to using stones as currency. Fiat money can exist in physical or digital form and is something that has no real value but is accepted as a medium of exchange.

Next, let’s understand what hyperinflation is. Hyperinflation is a situation where the inflation rate in a country exceeds 50 percent. This is an extreme situation, and examples are found in countries such as Argentina, Venezuela, and Turkey. In Malaysia, we do not face hyperinflation, although the inflation rate is usually below 2 percent.

Now, let’s answer the main question: is fiat money the cause of hyperinflation? The answer is no. The use of fiat money does not directly cause hyperinflation. For example, Malaysia uses fiat money but does not face the problem of hyperinflation.

The main cause of hyperinflation is the failure of economic management by a country. These include actions such as printing too much money to pay off debt, excessive purchases, and failure to manage the economy prudently. Therefore, we cannot blame fiat money as the direct cause of hyperinflation.

Remember, fiat money is just a medium of exchange, and how it is used depends on the wisdom and management of a country.



×

 

Hello!

Click one of our contacts below to chat on WhatsApp

× How can I help you?