Fiat currencies are the most widely recognised form of money in today’s global economy. They serve as a store of value, a means of exchange and a unit of account. In an expanding economy, the money supply must expand, in order for Fiat currency to remain useful as a means of exchange.
The visualisation below shows the real time flows of major fiat currencies into bitcoin.
Source: FiatLeak
The need to increase supply in line with economic growth continuously challenges Fiat currency’s place as a store of value in the mid to long term. Fiat currency is the oil to the economic machine. Without it, the machine ceases to operate.
The importance of dynamic money supply was learned the hard way in 1929 when the FED failed to tackle a deflationary dollar. As the dollar deflated, the purchasing power of each dollar increased. People chose to save rather than spend, since they could buy more tomorrow than they could today, with the same dollar. The velocity of money dropped, the economy contracted and the worst recession of the century followed.
Adjusting the money supply in line with demand is one of the primary functions of central banks. The most important rule of the game is to avoid a deflationary environment, where tomorrow’s dollar is worth more than today. Fiat currencies are inflationary by their very nature. They have to be in order to keep the economy moving.
Fiat currencies are great for day-to-day transactions. They are fine for short term savings. They are convenient for rainy-day funds… but they are terrible as savings instruments.
Bitcoin is not a fiat currency and it is certainly not responsible for keeping liquidity within an economy. Bitcoin is a disinflationary asset with a fixed and transparent supply schedule.
Don’t save in fiat. Save in Bitcoin.
Read more at: https://bytetree.com/insights/2020/04/what-the-great-depression-has-taught-us-about-bitcoin/
