Home Forex Articles Fiat Currency: The Biggest Forex Fraud Ever? Money that was based on gold or silver used to have intrinsic value due to its precious metal content.
Nevertheless, these days comparatively few people have any notion that the so-called fiat or paper currencies that they use as money on a daily basis in their countries are really only worth the value of the paper used in their production once public faith in the issuer fails.
In the end of the article you will find links to other big and entertaining stories of forex frauds. Precious metals like gold and silver have played an important historical role as currencies of exchange since ancient times.
Basically, Britain discovered that by fixing the value of its printed paper currency, the Pound Sterling, to the price of gold, it could use printed money backed by gold held in reserve to pay off its debts and otherwise engage in international commerce.
After such paper currencies issued by major nations were first introduced, their exchange rates relative to one another were first fixed to the price of gold. The stresses and costs of the World Wars in the early part of the 20 th century caused many involved countries like Britain to start printing money without having the gold to back it up.
By effectively leaving the Gold Standard, this had the rather unfortunate result of hyperinflation, as the Germans soon found out after the start of World War I. This hyperinflation scenario has also been observed in numerous other nations since that desperate and highly unsettling time for the German people.
While the fundamental conditions sometimes differ, the common risk factor usually involves the nation straying from the Gold Standard. Its government then starts printing more money without the hard assets to back it up. Of course, this phenomenon suitably illustrates the ever present risk of allowing countries to use fiat currencies that are just paper debt instruments rather than having hard currencies backed with real and valuable assets like gold or silver.
Just before the end of WWII, the major nations of the world agreed at the Bretton Woods conference of to peg their currencies to the value of the U. The so-called Bretton Woods system of fixed exchange rates provided for a period of considerable stability among the exchange rates of the major European nations in the post WWII period.
This in turn led to substantial growth in international trade and general prosperity. Nevertheless, even that gold-linked exchange rate system started to unravel in after the U. This surprise move by then-President Richard Nixon was allegedly done to quell speculative hoarding of gold.
As was previously seen in Germany to a somewhat lesser extend, a period of severe inflation in the United States predictably ensued. Basically, fiat currencies could well be considered the biggest forex fraud ever committed on the people of the world as they have now grown to accept virtually worthless pieces of paper in exchange for their labor, instead of assets of real intrinsic value like gold.
If so, the fiat currency scam has now been perpetrated on almost all populations of the developed world. Furthermore, the issuance of fiat currencies has allowed governments to overspend to an increasingly ridiculous degree, often without any real accountability to their citizens.
Read about Bernard Madoff, who got sentenced to years in prison for an unbelievable billion dollar Ponzi scheme. Read our story about the guy who stole Learn about Fabrice Tourre, the brain behind Goldman Sachs' one billion dollar fraud. Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite.
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