Question

9) What is an important reason or what are important reasons that most fiat currencies eventually fail? Check All That Apply

a) Because there are better alternatives.

b) Because steps are taken to tame inflation.

c) Because commodity prices rise and the balance of payments deteriorates.

d) Because too much money is printed.

e) Because of price speculation.

Answer 1

*Because commodity prices rise and the balance of payment deteriorates.

* Because too much money is printed.

( Fiat currencies have always failed throughout history. Under fiat currency system, Governments can print as much as money they want. When too much money is printed, money supply rises in the economy and value of money falls.. When money supply increases faster than output, result is inflation. Deterioration of trade balance just one of the consequences of inflation. Overall economic stability of the nation is affected. Thus, most of the fiat currency failures resulted from hyper inflation.)