Registered: Aug 2006
07-29-12 11:46 PM
Are Fiat Currencies Headed for a Collapse?
Published: Friday, 27 Jul 2012 | 5:27 AM ET Text Size
By: Lisa Oake
Anchor, CNBC Asia-Pacific
As the investment world eagerly awaits more stimulus, a debate on a previously unthinkable topic has started to emerge can fiat currencies survive round after round of debasement?
Some heavy hitters say the answer is no.
A fiat currency derives its worth from the issuing government - it is not fixed in value to any objective standard. That means central banks can print as much money as they want. If an economy is struggling, injecting more notes into the system juices activity but lowers the value of the currency in question.
With major central banks all desperate to stimulate their economies, some say currencies have entered a dangerous new phase often described as a race to the bottom.
Mark Mobius, Executive Chairman of Templeton Emerging Markets Group, says investors will soon start to demand fiat currencies be backed by gold or other hard assets.
It's already happening, you're beginning to see that trend with central banks stocking up on gold. The estimate is that at least half of the buying is central bank buying. They are looking to the day when they can say okay, our currency is backed by gold and therefore we're a strong country, Mobius told CNBC Asia.
Mobius has $50 billion under management.
Yu-Dee Chang, Chief Advisor at ACE Investment Strategists, says repeated stimulus is shortsighted. If you keep printing money, sooner or later, we're going to get in trouble. QE is good for the economy and for the market but the long-term effect is very much questionable, said Chang.