InvestorQ : Some central banks have been mentioning that gold is safer as a reserve currency than fiat currencies. What are fiat currencies and why are they risky?
Dilmini Mercia made post

Some central banks have been mentioning that gold is safer as a reserve currency than fiat currencies. What are fiat currencies and why are they risky?

Answer
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Dhwani Mehta answered.
1 year ago


This is a slightly more complicated argument. Fiat currencies are currencies that are issued under fiat (order) by the central bank of a country. For examples, currencies like dollar, Euro, INR, Pound, Yuan, Rouble and Yen are issued based on a fiat by the central banks of these nations. Virtually, there is no limit to the amount of currency that these central banks can print. This is where the problem comes because printing too much of currency means too much of inflation. That is a problem that gold can solve. Over the last 9 years we have seen major central banks printing these currencies left, right and centre. This has led to the substantial debasing of these currencies. While this debasement is not immediately visible, at some point of time it will show up in currency value and also impact your portfolio value. But, gold being a non-fiat currency, has limited supply. Hence, it is broadly immune to debasement. That again makes a case for including gold in your portfolio.