We have already published in our Golden Way blog a detailed review and comparison of gold and cryptocurrency as two potential assets for investment. But what if we compare precious metal with such a liquid and convenient investment as money itself? Let us explore the pros and cons of such a decision!
First, let’s define the term: what is fiat money? In fact, it is any currency backed by the government. That is, U.S. dollars, British pounds, Russian rubles or Ukrainian hryvnias – all this is fiat currency. But electronic currencies, crypto and other monetary alternatives issued in a decentralized way are not fiat money.
It is quite usual for us to have a deposit in a bank or keep a certain amount of currency at home, whether it is the national currency of your country or one of the world’s major currencies. Why are people attracted to saving in fiat money? First of all, it is convertible. Just take out a bundle of cash from an account or a safe deposit box, and you can buy anything you want. In the case of U.S. dollars or euros there is also an advantage in the quotes game: buy currency while the dollar is cheap and sell it when its price goes up. This approach is practiced by many of our compatriots. But is everything so smooth with fiat money? Of course not.
Any modern person has at least heard of the concept of “inflation”. Unfortunately, this process accompanies all world currencies. Sometimes inflation is the result of a crisis or economic collapse, other times it is man-made and controlled by central banks. But in any case inflation is a depreciation of your savings. And it is inevitable in the long run.
As a result it turns out that if you bought currency for the notional $100000 today, in a couple of years you will find out that in fact your savings are worth much less. What are the risks of investing in fiat money, and can they be avoided by investing in gold?
In general, fiat money has only one big advantage over gold: It can be spent here-and-now. But there are many pitfalls along the way, whether in the form of fluctuations in exchange rates, conversion rates, or the political situation in the world. Gold is an eternal value, and is much better suited for long-term accumulation. Just look at the price fluctuations of gold over the centuries, and you will see that you cannot find a more stable asset.