What kills me is people thinking some other currency is any less fiat than ours...all currencies are built on a mountain of fog, suck the fog out of one, people will have ideas about another...next thing you know a little currency war turns into a real shooting war.
Oh well, gotta pass the time somehow...
Fiat is like the rule of Kings. You have the right King in place, and the kingdom is stable, the people are free, and the government is far more efficient than anything we can do with a Democracy. Of course, what we lack is a decent method of picking Kings.
A Fiat system administered with the wisdom of our Mythical Good King, would work fine, just as a kingdom works fine. Geither/Bernake and Greenspan were not good Kings. And how ever ever got off othe gold standard when the Consititution clearly mandates it, I will never understand. If I don't pay my taxes, can't I argue that the government expects them to be paid in and pay taxes in an illegal currency? I am no lawyer, but I expect at some point that did go to court and the court laughed and said, oh that bit of the Constitution? We excised that, just like we did the 9th and 10th amendments. Now pay us (in U.S. Mint gold coins at $20 value if you want) or go to jail. Now there was a case where an employer DID pay in U.S. Minted Gold and silver
, and of course the Fed has been harrasing him for years, but he has yet to loose in court. I paid them $400 of 100% legal U.S. currency, and they owe taxes ( paid in fiat of course) on $400 dollars. The price of the gold in the coins is irrelevant. They are worth $20 each in U.S. currency. Now if only I could get my liberal employer to go along.
Anyway... other currencies are Fiat, but if they are administered by better kings, that may be a better bet, even if they aren't a much better bet. That was basically the thinking that allowed the dollar to become the reserve in the first place. Which govt do I trust to keep the currency more stable? My own, or the U.S. Government. In Argentina you were an idiot if you trusted the govt to do the right thing, and dollars (in cash) were the right thing to hold. Better than gold in many cases as the .999 pure stuff was accepted at "junk gold" jewelery rates as there was no easy way to verify the purity. We are in a race to the bottom now, but that doesn't mean someone isn't marginally better. In fact that is what Russia and China are couting on.. being the last man standing, and the worlds new reserve by default of the others.
I expect the interconectedness of things will still cause a worldwide depression as the dollar fizzles (after all we are a major market), but countries which have agreements in place will at least allow them to continue trading even if the dollar drops out suddenly. All that is needed is a stable medium of exchange ( and by stable I mean predictable - 3% inflation is fine as long as I know its 3% and will continue to be 3%.. Even gold and silver backed currencies can't promise that - the gold and silver rushes would cause economic havoc.. and yes the Federal reserve has an excellent record ( up till Nixon took us off of gold completely and even then some time after - wish I could find that link again- it was a good chart) of keeping the money value predictable..
Bototm line, a managed fiat system can, in theory, be a better currency system than one based on metals with potentially unpreditable production numbers, just as a Kingdom can, in theiry, be a better system of government than a Democracy or a Republic. The problem is, has been, and always be, in finding the people who can make them so. As that is the case, you pick from the alternatives you have, not the ones you wish you had, and that might very well be another system of fiat - doomed in the long term to failure by human failings, but pretty much everything humans do is. Good enough for now (or if you prefer "good enough for government work" ) is usually the best we can achieve.