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Glint Special Report: Uncontrollable Inflation

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Special Report Inflation

So, inflation in the UK is now 9.1%, a fresh high in 40 years. What will it be soon? Probably 11% in October, says the Bank of England (BoE). “It’s our job to make sure inflation returns to our 2% target… we will take the actions necessary… to do this we have increased our interest rate from 0.1% to 1.25% since December 2021” says the BoE on its website. Cynics suggest that the inflation ‘target’ will soon double – 4 will be the new 2.

“I want people to be reassured that we have all the tools we need and the determination to reduce inflation and bring it back down” said Rishi Sunak, Chancellor of the Exchequer, the man tasked with running the UK’s finances, after the latest inflation data was published.

Sunak is a politician; he knows how to trot out emollient words. But not only has he lost control over prices; he’s also lost control of the narrative. For the government does not have the tools; or at least it won’t be in a hurry to use them. Moreover, he is embarked on a policy of giving away £15 billion ($18.3 billion) to households to cushion the blow from high energy bills. He said he is “proud to say that around three-quarters of that total support will go to vulnerable households”. The other quarter who are not ‘vulnerable’ (which includes former Chancellors like Kenneth Clarke, who has said he doesn’t need it) will go into stoking inflation.

No-one under 40 knows what inflation this high is like. No-one under 40 knows what it takes to stifle very high inflation. Forty-three years ago (Rishi Sunak is 42) Britain elected an earlier Conservative government and Prime Minister, Margaret Thatcher. That government put interest rates up to an unimaginable 17%, and to 17.99% in 1980; it managed to stifle 1979’s inflation of 13.39%/year and, by 1983, inflation was approaching more tolerable levels, of 4.59% that year. Those high interest rates were unbelievably painful for mortgage-holders, people on welfare benefits, people on fixed incomes such as pensioners, and those who lacked the muscle to force a matching pay rise from employers. And the Pound since 1979 has lost 81% of its value.

Today, we have inflation at 9.1%, just 4.29% lower than in 1979, and yet interest rates of around 16% lower than in 1979. When Rishi Sunak says his government has the ‘determination’ to reduce inflation, one wonders who he is trying to kid. Are these the words of a serious person? Sunak seems to be a conventionally-minded economist, which means he believes that inflation can only be tamed by pushing interest rates higher than inflation – so if he is serious, he should perhaps press the BoE to raise its base rate to 10% (or slightly higher) immediately. Only Turkey’s President Recep Tayyip Erdoğan, seems to think that inflation (now 70%/year in Turkey) can be quelled by cutting interest rates.

 

That inflation is now uncontrollable is obvious. Regulated energy tariffs are forecast to jump by 40% in October, costs paid by factories for materials and energy (a key determinant of prices paid by consumers in shops) are 22.1% higher than a year earlier, the biggest increase since these records began in 1985. Food price inflation in Britain is likely to hit 15% this summer, according to the Institute of Grocery Distribution (IGD). “We’re unlikely to see the cost of living pressures easing anytime soon… we are already seeing households skipping meals – a clear indictor of food stress”, said IGD chief economist James Walton. In April, the research company Kantar predicted the annual cost of supermarket shopping would rise by £270 ($331) this year but now estimates it will rise by £380 ($466). All this, without counting the inflationary costs of the ongoing war in Ukraine and Russia’s threat to halt gas deliveries to the European Union in retaliation for sanctions. Although Britain imported just 4% of the gas it used last year from Russia, any supply cut from Russia will push up international prices.

Why do we assert that Sunak isn’t serious when it comes to inflation? The reason is simple – Recession. If the BoE were to raise interest rates even close to where inflation is headed, the shock of that would throw the economy into an almighty recession, with massive job losses and collapsing businesses. This wouldn’t happen overnight – it wasn’t until 1984 that unemployment reached an all-time high of 11.9%, when interest rates were 9.5% in the UK.

The Conservative government will already be eyeing the next general election, just two years away. Sunak has at least two targets – increasing economic growth and engineering an exit from the current crisis that will secure a victory at the polls in 2024. With rejuvenated public sector trade unions, already angry that their members have seen no wage growth in the last decade, now queueing up to demand inflation-matching salary increases, he is likely to fail at both. The irony is that he is giving away £15 billion as a voter-placating gesture, but that huge sum will be forgotten very quickly.

So, what can ordinary people do to help protect their savings while governments experiment with ballot-boosting ways to control our economies? Obviously at Glint we don’t offer financial advice, but we are strong believers in putting our savings into gold. Gold has gradually increased in value by 500% since the 1970s, while the GB Pound and the US Dollar have lost over 85% of their purchasing power.

At Glint, we make every effort to demonstrate a balanced conversation between gold, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.

What Does it Mean to Have a Stable Currency?

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What is a stable currency

Some of the most vocal critics of cryptocurrencies and other emerging forms of money question their stability. But what does it actually mean for a currency to be stable? And what factors contribute to it?

Throughout the world, there are many traditional fiat currencies that could be described as stable, including the US dollar, pound sterling, Swiss franc, and Japanese yen. What separates these currencies from emerging, often volatile cryptocurrencies isn’t a secret, unknown entity; it’s simply the fact that they’ve been around much longer, and therefore their ability to maintain value is better tried and trusted.

In this guide, we’ll take a closer look at what makes a currency stable, considering how different types of money accrue stability and how the gold standard has contributed to the formation of some of the world’s most stable forms of currency.

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What is a Stable Currency and How Does Money Become Stable?

A stable currency is a form of money whose value hasn’t changed significantly for a long period of time. It’s any currency that is in mainstream use, with a proven track record in sustaining value and providing a trusted form of money for day-to-day consumers.

One of the first things to know about stable currencies is that they take years to reach the point at which they can be defined as ‘stable’. The US dollar, for example, took over a century to reach the stability threshold, while other, older types of money including the British pound sterling have been in circulation – and thus moving towards stability – since the 1600s.

What is a stable currency

Secondly, much of what makes a currency stable stems from the fact that they’re backed by strong economies and governments. From the US dollar to the Swiss franc, the world’s most stable currencies are linked to countries with solid economies and governance, which contributes to them being safe, stable, and often used by other countries in a foreign exchange capacity.

As well as benefiting from the backing of a strong economic power, stable currencies often originate in countries that formerly used the gold standard – a system that pegged day-to-day money against a nation’s gold reserves. We’ll talk more about the link between stable currencies later in the guide, but suffice to say it’s no coincidence that the world’s most valuable precious metal has strong ties with currency stability.

How Did the Gold Standard Influence the Formation of Stable Currencies?

Gold has fascinated us for over 5,000 years, but it wasn’t until the 19th century that the gold standard was introduced. First adopted by England in 1821, the system worked by using gold to back the value of money, and was quickly adopted by most developed nations as a means of regulating value and standardizing monetary systems.

Reaching its zenith in the late 19th and early 20th centuries, the gold standard began to decline in the wake of World War One, when global government finances were in a state of disarray. Therefore, an alternative system was developed to reduce countries’ reliance on gold reserves, resulting in the emergence of ‘fiat money’ – currencies not backed by gold but instead defined as legal tender under government decree.

Although the ‘true’ gold standard only existed for 50 years or so, its legacy can still be felt within stable financial currency systems today. Indeed, gold remains a critical financial asset for countries and central banks around the world, and remains one of the most widely used indicators of a nation’s economic health and prosperity. As such, its long-standing affiliation to fiat money means that currencies like the US dollar are viewed as stable since they remain connected to the value of gold – one of the world’s most coveted and easily recognized assets.

Benefits of a stable currency

How Could Cryptocurrencies Become Stable Currencies?

When defining stable currencies, it’s worth considering what many people view as their antithesis: cryptocurrencies. With a short history and a volatile value profile, these new digital currencies are far removed from the likes of the US dollar and the British pound. The question is: could they ever achieve stability comparable to fiat money? And what would it take to get them there?

Though becoming increasingly popular, cryptocurrencies like Bitcoin aren’t as widely used or trusted enough to be considered ‘stable’. For them to accrue stability, they would need to be more widely used, both by day-to-day consumers and as a viable form of value exchange between businesses, organizations, and countries.

In short, the more people use cryptocurrencies, the stronger and more stable they’ll become. Just as the US dollar, the Japanese yen, and the British pound grew from nothing over many decades, so too could cryptocurrencies – in theory, at least.

Another way that cryptocurrencies could become stable currencies is through their use as a hedge against inflation. Much like gold has long been used as a line of defense against declines in monetary power, cryptocurrencies could serve a similar purpose.

How? Since cryptocurrencies can’t be easily manipulated, like fiat currencies, they have the potential to bring stability and provide protection against inflation. Like gold, it’s impossible for a single government or entity to make more cryptocurrency, so it has the potential to become an effective inflation hedge.

Time will tell how stable cryptocurrency becomes in the future. Right now, it’s not entirely clear how resistant some digital currencies are to manipulation. And with crypto not yet in widespread, regular use, the likes of Bitcoin aren’t yet building the trust and exposure needed to become true stable currencies.

What is a stable curency

Is Gold the Most Stable Currency in the World?

While the era of the gold standard may have ended decades ago, its legacy can still be felt in the world’s strongest economies. And since gold is still recognized as the only international form of currency whose value can’t be debased, manipulated, or altered, it remains one of the strongest, most stable currencies in the world, and one which millions of people look to as a safe, secure, and unwavering store of value.

At Glint, we make every effort to demonstrate a balanced conversation between gold, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.
 
To learn more, visit our homepage or give us a call at +44(0)203 915 8111.

A Guide to CBDCs

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Could I use CBDCs

CBDCs, or central bank digital currencies, are on the rise, with nine already launched and more than 60 in development. But what are these new forms of bank-backed digital money? And how might they affect you?

Driven by the rise of crypto, CBDCs are being heralded by some governments as a safe, stable form of digital money. But there’s still a long way to go before they become an accepted form of day-to-day public money, and questions remain over their safety, ethics, and integrity.

To help get you up to speed on CBDCs, we’ve put together this essential resource. Covering what they are, why they’re needed, and their risks and advantages, our guide is the perfect introduction for anyone looking to learn more about how central bank digital currencies could affect their money in the future.

Use the links below to navigate or read on the for the full guide.

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What Are CBDCs?

CBDCs are central bank- and government-backed digital currencies that are designed to offer a safer alternative to cryptocurrency. They aim to bring the advantages associated with crypto to a wider public, ensuring that fiat currencies aren’t outstripped by rapidly emerging digital private challengers.

While CBDCs can generally be compared with cryptocurrencies like Bitcoin, there are distinct differences. For one, crypto relies on a decentralized database known as blockchain. While early CBDCs utilize similar technology, the central banks that control them manage the blockchain themselves, making them a private and not decentralized form of currency exchange.

Up until now, the development of CBDCs has been slow, with only a handful of countries moving forward with the initiative into its advanced stages. But with major financial players like China among the early adopters of CBDCs, it won’t be long before we see other digital currencies emerging in developed countries around the world.

It’s a similar case in other Western nations too. In the US, the Federal Reserve is currently exploring the costs, benefits, and limitations of CBDCs, with a view to publishing its findings in the near future, and the UK’s ‘Britcoin’ is currently being explored by the Bank of England.

A Guide to CBDCs

Why Are Governments Looking to Develop CBDCs?

So, exactly why are world governments looking to develop CBDCs?

The move comes in response to two major global challenges, the first of which being the astronomic rise of crypto. While the development and take-up of cryptocurrencies was initially slow, investment has risen dramatically over the past two or so years, as a growing number of people look to buy into digital money (still only 23% of Americans and 6% of Brits own crypto, but this is growing yoy).

The rise and rise of crypto presents several challenges to governments and central banks. Chiefly, they’re concerned that digital currencies could begin to outstrip regulatory powers, and thus elude government oversight.

What’s more, there are geopolitical factors to consider. As the devastating war continues to play out in Ukraine and the world looks to find its feet in the wake of the COVID-19 pandemic, governments are looking to shore up their respective economies and put money into initiatives that provide better protection in times of financial uncertainty.

As well as these overarching considerations, governments and central banks are also seeking to maintain protections for consumers and businesses. There are concerns that unregulated digital currencies could ultimately threaten financial stability, harming the welfare of individuals and enterprises in the long term. The introduction of CBDCs is seen as a means of embracing cryptocurrencies without  potentially harmful effects.

What Are the Advantages of CBDCs?

When it comes to a viable means of competing with digital currencies and crypto, CBDCs may be the solution that central banks have been looking for. In early versions of the technology, which include China’s e-yuan and the Bahamas’ Sand Dollar, several advantages have been identified which could ultimately help the technology to proliferate on a global scale.

What is a CBDC

Let’s take a closer look at the benefits of CBDCs below.

  • It’s hoped that the introduction of CBDCs could help to reinvigorate and bolster the crypto ecosystem, leading to greater competition, innovation, and growth. The benefits of this would spill over into other areas, not least the technology sector, helping to generate economic growth.
  • Like other blockchain-enabled currencies, CBDCs can provide streamlined and rapid payments and settlement, as well as efficient overseas payments. Because they lack intermediaries, they support fast, liquid payments and transfers – which is one of the key reasons why cryptocurrencies have proven so popular. That said, it’s worth remembering that crypto transactions can be quite slow and expensive, depending on the blockchain and currency.
  • As countries around the world continue to move towards a ‘cashless society’ status, CBDCs present a secure, fast, and efficient alternative to traditional card payments. For governments seeking faster progress towards the phasing out of coins and notes, central bank-backed digital currencies have a role to play in post-cash economies.

How CBDC works

What Are the Risks of CBDCs?

Of course, CBDCs aren’t without their risks, which is why nations like the US and UK are making such a thorough job of vetting their viability. Among the risks associated with CBDCs are:

  • Currently, CBDCs have a major geographical flaw, in that they’re only accepted in their country of origin. This could prove a barrier to their long-term functionality and uses, unless a solution is put in place.
  • Some experts fear that CBDCs could lead to major bank runs, in which lots of customers withdraw money at a similar time. The impact of this can drive banks into insolvency, meaning reduced competition and the threat of central bank buyouts, which can put a squeeze on the public purse.
  • In some instances, there have been debates about the ethics of CBDCs, with concerns that central banks could gain too much control over consumer spending. Some experts argue that CBDCs are essentially programmable currencies, which erode free choice and consumer rights.
  • There’s also the issue of inclusion, with concerns about how well older generations will access CBDCs if they become a mainstream currency option. For example, how easy will it be to access CBDC technology on older devices? And, some may ask, is it really fair to expect old or vulnerable people to access their money through ‘digital wallets’?
  • A further worry concerns privacy. Would a CBDC give a government easier or greater access to individuals’ data? This is a major concern about China’s e-yuan for instance; it gives central government tremendous surveillance possibilities.

At Glint, we make every effort to demonstrate a balanced conversation between gold, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.
 
To learn more, visit our homepage or give us a call at +44(0)203 915 8111.

How is the US Dollar and Gold Linked?

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Does gold affect the US dollar

Gold remains one of the world’s most coveted commodities, much as it has for thousands of years. But why is the precious metal so highly prized? And what connection does it have to the US dollar and the value of day-to-day currency?

To find out, we’re taking an in-depth look at gold and its relationship with the US dollar. We’ll trace its history and background, highlighting how it has helped shape our economy, and why it’s still considered such an important resource today.

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What is Gold’s Role in Modern Currency Systems?

Gold remains a universal wealth and value indicator around the world. Since ancient times, it has proven an efficient, reliable, durable, and consistent source of value, and so it is still widely accepted as a global barometer of economic and political health.

When an economy is struggling, the value of gold has historically been seen to increase. This is through increased demand for what many see as a stable and consistent asset, and one not easily shaken by geopolitical turmoil or governmental weakness.

The same is usually true in reverse when an economy is prospering. In peacetime, when a fiat currency is performing with no signs of recession or inflation, the value of gold tends to drop. This is through decreased demand.

Interested to learn more about what affects the price of gold and how it relates to global currency systems? Read our comprehensive guide.

How is the US dollar and gold links

How Are Gold and the US Dollar Linked?

Gold has long been associated with the US dollar. Indeed, the precious metal is currently denominated in dollars, no matter where in the world it’s traded.

The US first adopted the gold standard in 1834. This meant that the government agreed to convert a fixed amount of gold into paper money, for the purposes of day-to-day use.

The gold standard is considered a stable and efficient means of controlling inflation, ensuring that the issuance of money is maintained in the long term. However, in 1931 the US stopped using the gold standard, with the system phased out completely by 1973. In between, the Bretton Woods Agreement established the first international currency exchange, which pegged the US dollar to the value of gold at a fixed rate of $35 per ounce. Though relatively short-lived, the agreement led to the creation of the International Monetary Fund (IMF) as well as the World Bank.

In 1973, the US gold standard was replaced by fiat money, which effectively means that government issued money, not backed by gold, is accepted as a means of payment.

Still, even after the abandonment of the gold standard, gold and the US dollar remain closely linked. The per-ounce cost of gold is directly affected by the value of USD; when the dollar is high, demand for gold (and therefore value) is likely to drop; when the dollar is weak and inflation is rising, gold prices tend to leap as investors look to protect their assets from diminishing fiat values.

Links between gold and US dollar

While there is no official relationship between gold and USD, the values of each tend to oppose one another. This is largely down to external factors like economic performance, monetary policy, and supply and demand, not to mention overall investor sentiment.

At Glint, we make every effort to demonstrate a balanced conversation between gold, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.
 
To learn more, visit our homepage or give us a call at +44(0)203 915 8111.

5 Ways to Protect Yourself Against Financial Fraud

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Investor or not, financial fraud is a risk to everyone. In 2021 alone, cases of global fraud rose by a staggering 149%, with many blaming the unique conditions of the COVID-19 pandemic for this dramatic increase.

As an individual, it can be hard to stay abreast of the latest anti-fraud best practices. After all, cyber-attacks and phishing scams are becoming ever more sophisticated, so the average person may lack the knowledge and expertise to adequately protect themselves from these growing threats.

To help you safeguard your assets against fraud, scams, and cybercrime, we’ve put together this essential guide on protecting yourself against financial fraud. Because while it’s impossible to guarantee 100% protection against fraud, a proactive approach can certainly help.

1. Know How to Identify Common Scams

Cybercriminals will use any means at their disposal to steal your personal information and financial data. This applies to a range of channels, including fraudulent phone calls, text messages, and emails, as well as online banking and investment scams.

While scams differ across these channels and platforms, criminals typically use comparable tactics to try to access your financial records. Familiarizing yourself with these commonly used strategies can help you to spot scams – and take action – before they materialize.

Common signs of financial scams include:

  • Requests to provide sensitive personal or financial information
  • ‘Urgent or ‘act now’ messaging
  • Prompts to call unfamiliar numbers; always cross-reference contact information against a bank or organization’s official contact details
  • Requests to provide your card’s PIN for ID purposes
  • Not using your full name or providing any other identifying information in email or text correspondence
  • Suspicious links to dubious-looking web pages, often with a spelling mistake or error to differentiate it from a bank’s official site

For further advice on spotting financial scams, visit the USA.gov fraud portal.

Protecting against financial fraud

2. Familiarize Yourself with Your Bank’s Privacy Policy

Banks and other financial institutions take a proactive role in keeping customer information safe. They understand that security standards are a major concern for users, so it’s in their best interest to provide as secure a service as possible.

To help you discern scams from genuine correspondence, banks provide no-nonsense information on the types of requests and information they typically ask for. Though rules differ between organizations, financial institutions will generally never:

  • Ask you for personal information over the phone or online
  • Request that you transfer money into a separate account, even if you’re a victim of fraud
  • Ask you to withdraw funds and hand them over for safekeeping
  • Request digits from your debit or credit card, particularly the three numbers from the privacy strip
  • Pressurize you or use urgent messaging

3. Never Click on Suspicious Links in an Email or Text Message

Phishing scams often take the form of urgent messaging prompting you to click on suspicious links. Don’t. These bogus links lead nowhere and can often end in you handing over personal details or providing inadvertent access to cybercriminals.

Banks and financial institutions rarely send correspondence that contain links. So, if you do receive a message which includes a link, always treat it with suspicion.

The easiest way to spot a bogus link is to hover over the hyperlink until the forwarding address appears; on mobile devices, you can long-press the link to see the same details. If you don’t recognize the address, never click the link.

Alternatively, if you’re worried about clicking a link by mistake, simply contact the organization in question. They should be able to confirm whether or not the message or email is genuine.

Phishing scams like these are among the most prevalent forms of financial fraud out there; they’re also the most effective. Our advice is to treat every email or message with suspicion, confirming all the facts before taking action.

Protecting your business against financial fraud

4. Know the Signs of Investment Scams

Interest in investing has exploded over the past decade, and the emergence of new asset classes, platforms, and opportunities has, inadvertently, given rise to a wave of investment scammers. Like general banking scams, investment fraud is becoming increasingly sophisticated, so you need to perform the appropriate due diligence at every stage of your investment journey.

Understanding the common signs of investment fraud is a good starting point for developing a sound working knowledge of the typical threats that investors face. Warning signs to look for include:

  • Unsolicited contact – cold-calling in any form should arouse suspicion, so proceed with caution.
  • Improbable returns – if a deal sounds too good to be true, it usually is. Question every aspect of a proposition to validate its legitimacy.
  • Pressure – a common tactic used by investment scammers is to pressurize you towards a decision. This typically takes the form of a deadline or deal expiration, at which time you’ll no longer get the same favorable rates. Never feel pressured to make any investment decisions.
  • Requesting remote access to your devices – some scammers may request remote access to your device to show you a specific app or piece of software. Let them in, however, and they could easily swipe your personal information or lock you out of your device altogether.
  • False authority – the shrewdest scammers go to great pains to make their materials look as convincing as possible, using doctored logos, messaging, and regulatory wording to add authenticity to their pitch. Such scams are among the hardest to spot, but as we touched on earlier, you should treat all unfamiliar correspondence with suspicion.

Businessman protecting against financial fraud

5. Listen to Your Instincts

If you’re reading this guide, you’re already halfway to making yourself less of a target of financial fraud. But there’s only so far guides, advice, and security software can protect you and your money; the rest is up to you.

When it comes to managing your money – either through a bank or investment portal – you need to stay sharp, smart, and switched on. Common sense and gut feeling are as important as security protocols when managing money online, so never let your guard down.

Whether you’re an investor or a bank customer, there are times when complacency can creep into day-to-day asset management. You may start being less careful with your everyday apps and software, making it easier to miss the warning signs of incoming threats.

What’s more, it’s often difficult for the average person to keep up to date with the latest security threats and fraud tactics. With complex new strategies emerging all the time, a careful and consistent approach is needed.

If you are the victim of financial fraud, it’s important to report this to your local government. They pass all fraud cases to the federal government, which in turn tracks scam patterns, updating guidance accordingly. This ensures that security protocols remain in step with the latest threats.

At Glint, we make every effort to demonstrate a balanced conversation between gold, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.
 
To learn more, visit our homepage or give us a call at +44(0)203 915 8111.

What is Blockchain? The Technology Behind Cryptocurrencies Explained

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Despite some false starts and bad press, cryptocurrencies are on the rise. But how exactly do these new digital currencies work? And what powers them? The answer lies in blockchain, a technology many will have heard of without fully understanding what it is and how it works.

If you’re interested in investing in cryptocurrencies like Bitcoin or Ether (Ether or ETH is the cryptocurrency of the Ethereum blockchain), you should first familiarise yourself with blockchain. Understanding how the technology relates to digital currencies will help you to better understand how they work, and the risks and rewards involved.

To get you up to speed, we’ve put together a need-to-know guide to blockchain. Use the links below to find the help you need or read on for the full guide.

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What is Blockchain?

Blockchain is a type of distributed database that stores information in a digital format, sharing it among nodes within a network. The technology plays a critical role in cryptocurrencies, helping to keep digital currencies secure, decentralized, and reliable.

The nature of blockchain technology means that it’s very difficult to hack, cheat or change the system – making it perfect for handling digital currencies. Think of it like a digital ledger, wherein transactions are duplicated and distributed across an entire computer network.

As a standalone facility, blockchain is categorized as a distributed ledger technology, or DLT. This essentially refers to any technology that is managed and monitored by multiple participants, i.e., investors in the case of cryptocurrencies.

Since emerging in the early 1990s, blockchain and its applications have exploded in popularity, with the technology used predominantly in conjunction with cryptocurrencies.

A guide to blockchain technology

How Does Blockchain Work?

For those not versed in advanced computer tech, blockchain can be difficult to get your head around. But it’s certainly worth gaining an understanding of how the technology works, so you can approach cryptocurrency investment with greater confidence.

The primary goal of a blockchain is to keep the information contained within safe, secure, and incorruptible. Because the technology uses duplication and distribution to safeguard data, it’s almost impossible to tamper with, as would-be hackers would need to change every block of data within the chain – an improbable undertaking.

To help you understand the benefit of using blockchain to support digital cryptocurrencies, here’s a brief analogy. Say a company operated over 1,000 servers from a single location, using them to store business-critical data. While they would enjoy full control and ready access to each server, there is one major weakness: the data is at risk from external problems that jeopardize its integrity and security.

Because a blockchain duplicates and distributes data across a global network, there’s no such single point of failure. Instead, the information is secure, safe, and mobile, accessible by all invested parties but not exposed to external influences and threats.

From a cryptocurrency point of view, blockchain is essential in maintaining the currency’s value and security. And as a blockchain gets longer, it only gets more secure, which is why well-established digital currencies such as Bitcoin are so valuable and in demand.

To further inform your understanding of blockchain, here’s a breakdown of how a cryptocurrency blockchain transaction happens in practice.

  1. When an investor buys, sells or trades cryptocurrency, a new transaction is entered in the blockchain.
  2. Details of the transaction are transmitted to a peer-to-peer network, distributed to computers and servers all around the world.
  3. From here, the network uses algorithms to solve complex equations relating to the transaction, confirming its validity and accuracy.
  4. After confirmation, the network clusters these transactions into blocks – hence the term ‘block’
  5. Next, these blocks are ‘chained’ together, resulting in a complete history of all transactions within a single blockchain.
  6. After which, the transaction is finalized and complete.

Using blockchain technology

Why is Blockchain Used for Cryptocurrencies?

Cryptocurrencies rely on blockchain. But why is the technology such a good fit for digital currencies? Let’s take a look at some of its key attributes and capabilities.

  • Network-wide transparency – when a new investor buys into an existing cryptocurrency blockchain, they’re granted access to the chain’s ledger, which details transactions old and new. This is important for transparency and trust, helping to maintain the currency’s perceptible value.
  • Anonymous – the personal details of individual investors are kept private and anonymous within the blockchain, further enhancing security and data protection.
  • Irreversible changes – once a transaction is submitted to a blockchain, it cannot be changed or amended. This improves accountability and security, while ensuring accurate and complete data logs.
  • Time-stamped data entry – all logged transactions within a blockchain are time-stamped for security and authenticity. This improves the validity and makes it easier to track changes and developments.
  • Individual encryption – data encryption provides outstanding security, with all records protected from end to end.
  • Programmable – for a blockchain to work in conjunction with cryptocurrencies, it must be programmable. This allows for direct manipulation of records within a chain from individual users, which is an essential part of buying, selling and trading digital currencies.

How Safe is Blockchain?

There is much debate around the safety, security, and viability of blockchain as it relates to digital currencies. And while many remain skeptical about the technology, there’s no denying its strength and robustness in protecting crypto investors from data theft and cybercrime.

As touched on above, blockchain’s key strength lies in decentralization. With data distributed across innumerable global devices, a blockchain is almost impervious to direct, location-specific cyberattacks, as well as external influences like power loss or natural disaster.

What is blockchain

What’s more, the nature of the technology also lends itself to maintaining tight security for investors and stakeholders. With new blocks of data always added to the chain in a chronological, linear fashion, users can easily spot inaccuracies and anomalies, while hacking such a system would require an extraordinary amount of time and money.

Of course, as with any alternative currency, you need to think carefully before investing in blockchain-supported crypto. There are risks involved with all cryptocurrencies, including mainstream variants like Bitcoin, so be sure to carry out the appropriate due diligence before parting with your cash.

At Glint, we make every effort to demonstrate a balanced conversation between gold, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.

To learn more, visit our homepage or give us a call at +44(0)203 915 8111.

Investing in Physical Gold vs ETF: Pros and Cons

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Gold remains a popular investment prospect, much as it has for centuries. The commodity is so popular, in fact, that there’s now a way to invest in gold without owning any – and that’s via an ETF.

ETFs, or exchange-traded funds, present a way to invest in gold through a stock market, much like you would with shares in a company. You don’t physically own any gold but can benefit from its robust value profile and tendency to stay put amid volatile trading conditions.

The question is: should you buy into gold ETFs, or is it still better to own the real deal? That’s just one question we hope to answer in this guide, which covers everything you need to know about the physical gold vs ETF debate. Whilst we are passionate about gold, we’re not involved in investments, so you can rest assured the information here is completely impartial.

By the end of this guide, you’ll know…

What is an ETF and How Does it Work?

An exchange-traded fund is a mutual fund that lets investors buy into gold through a stock exchange. Rather than owning physical gold, you instead own shares in a fund, with values tracking against gold’s real-world price.

Every unit of gold ETF equates to one gram of physical gold. It is, however, rare for investors to redeem their ETFs for the real thing, since many asset management companies simply don’t allow it.

An ETF is a dematerialized way of benefitting from gold’s strong value profile without the maintenance, storage and security costs that come with actually owning the precious metal. Remember, gold is often used as a hedging tool against inflation and declining currencies, so a gold ETF is a flexible way to harness these benefits without buying the real deal.

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What Are the Pros and Cons of Investing in Gold ETFs?

Now that we’ve covered what ETFs are, it’s time to focus on their pros and cons. That way, you can decide if physical gold or ETFs are the right investment option for you.

The Pros

  • Fluid and flexible– owning physical gold is a hands-on investment, and this can make it more difficult to sell, trade and transport. In contrast, gold ETFs are as fluid and flexible as any other type of stock, meaning you can buy and sell with minimal overheads or administrative requirements.
  • Minimal administrative overheads – this brings us neatly to our next point, which relates to the low cost of owning ETFs compared to physical gold. Storing, securing, transporting, and handling gold all costs money, so you need to factor this into your investment decision. By contrast, ETFs have fewer expenses attached.
  • Comparable return for reduced risk – gold ETFs generally fetch the same return as physical gold, since they track real-time gold values. That means you can enjoy comparable fiscal performance without worrying about your gold being stolen, lost or misplaced, things that, though rare, can happen if you opt for the physical route.
  • Minimal disparity in value – because gold is a physical commodity, its condition matters, and there may be some disparity in per-ounce price depending on the bank or vendor in question. For ETFs, this is less of a problem since what you’re selling or trading is purely part of a mutual fund, and will be treated in the same way as shares or stocks.
  • Small denominations – one of the best things about gold ETFs is that they can be bought in small denominations, down to one unit (which equates to one gram of gold). This makes them an excellent starting point for new investors who are looking to diversify their growing portfolio without buying a lot of expensive physical gold.

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The Cons

  • Can’t be redeemed for physical gold – despite what you might think, gold ETFs can’t be redeemed for physical gold. They can, however, be exchanged for cash, but this defeats the purpose of buying an ETF in the first place (since they’re viewed as a good way to safeguard against downturns in standard fiat currencies).
  • ETF trading costs can add up if you’re buying and selling regularly – although the cost of gold ETFs is smaller than the logistics-related overheads of owning physical gold, there are a few add-on expenses you need to factor in. For starters, you’ll lose a percentage of the total ETF value each year to the fund’s expense ratio, which is an annual charge to cover admin and management. You’ll also pay commission each time you sell, as well as a broker fee (though some ETF brokers are now offering fee-free services).
  • Huge choice of ETF products – since gold ETFs emerged, dozens of products have followed suit, and this can make it difficult to choose the service that’s right for you. With a lot to weigh up, inexperienced investors may become overwhelmed by the options available.
  • Exposed to risk like any other stocks or shares – let’s be clear: gold ETFs are riskier than physical gold since they’re traded on derivative markets, and a part of the financial system that physical gold safeguards against. If you’re willing to accept this risk, however, then they may prove a more viable and flexible alternative.

What Are the Pros and Cons of Investing in Physical Gold?

The advantages and disadvantages of investing in physical gold are well-publicized, so we won’t include a full list here. We will, however, focus on the pros and cons of the precious metal in how it compares to its modern counterpart, the ETF.

Reinvesting in gold

The Pros

  • Physical gold carries far fewer risks than ETFs – there’s something reassuring about knowing you have physical gold locked away in a vault, as opposed to intangible assets floating in the ether and exposed to external threats and risks. Physical gold will always be one of the safest and most reliable commodity assets money can buy.
  • Physical gold provides financial reassurance – physical gold has long been used as a way to shield investors from rocky economic conditions; in fact, it’s something it excels at. You don’t get the same fallback qualities with ETFs, which are more vulnerable to creaks in the market.
  • Complete control over when to sell – because the value of ETFs can fluctuate much more broadly than physical gold, investors may be more likely to sell at inopportune moments. With physical gold, whose value remains relatively flat, there’s a much greater sense of control when it comes to selling or trading, and less pressure on your decision.

The Cons

  • Expensive administrative costs – as touched on above, physical gold can be expensive to store, transport and keep secure, so this is certainly something to factor into your decision.
  • Slower to move, sell or trade – selling or trading physical gold requires a lot of work, which can be difficult and expensive to manage, particularly for new or inexperienced investors.
  • Minimal returns – gold is a safe commodity asset, but you shouldn’t expect high returns on your investment. Instead, treat it as a buffer against economic shock, and consider this when weighing up your cost to risk ratio.

Glint offers you a chance to own and spend real, physical gold. Your gold is stored in a secure vault in Switzerland, and using Glint’s technology can be spent in stores around the world. You can use your gold to buy almost anything, from something so small as a coffee.

At Glint, we make every effort to demonstrate a balanced conversation between gold, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.
 
To learn more, visit our homepage or give us a call at +44(0)203 915 8111.

How to Diversify Your Financial Portfolio

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All experienced investors know that diversification is the key to long-term success. It spreads your capital among several assets and opportunities, effectively mitigating risk while ensuring maximum return on your investment.

For new investors, however, understanding how and when to diversify a financial portfolio can be tricky. There’s a lot to grasp about the value and purpose of diversification, and how it fits into your broader investment journey.

As you know, we’re not financial advisors and so would never dream of offering you any financial advice, however, that said, to help you make a success of diversifying your financial portfolio, we’ve put together this need-to-know resource that you may find of interest. It’s a set of suggestions that you might want to explore, rather than a set of directions on how to succeed. The following offers guidance on why and how to diversify your financial portfolio, it also offers tips and suggestions on some of what many consider the best alternative investments for portfolio diversification.

Ready to get started? Use the links below to navigate or read on for the complete guide.

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Why Diversify Your Financial Portfolio?

If you entered the investment arena with a single asset class in mind, you may be reluctant to stray far from what you know. But investing in other areas is important for several reasons, helping you spread risk and improving your chances of making a return.

Financial portfolio diversification is all about decreasing risk and making sure you’re making as much money from your assets as possible – regardless of market conditions and external factors. To do this, you need to select complementary investments that move in opposite directions, so that you’re always covered and never exposed to too much risk.

If you’ve ever heard the phrase “never put your eggs in one basket”, there’s never been a truer term in relation to investing. Even if you opt for high-risk investments, balancing your portfolio with assets in unrelated industries can help to reduce risk significantly, so you can reap the rewards of backing high-value, high-risk assets.

Diversifying a financial portfolio

To show you how investment diversification works in practice, here’s a quick example.

Say Investment A was a new chain of high-street bars and Investment B was an entertainment streaming service. Now, imagine that the Covid-19 pandemic had just begun.

With Investment A, you’d expect to see a dip in returns as people stay at home and avoid going out. You may even experience a loss, particularly as legal restrictions are introduced.

However, with more people at home, chances are that Investment B will see a sizeable uptick in revenue. With demand for entertainment streaming reaching a new high during the pandemic, any losses you made from Investment A would be countered by the success of Investment B.

This is portfolio diversification in action and is just one example of how you can split your assets to protect against risk.

How to Diversify Financial Portfolio?

Typically, when we think of financial asset diversification, there are three primary strategies you can use to maximize profits and reduce risk. As an investor, you need to be mindful of:

  • Asset Class Diversification – Investing in different asset classes, like bonds, stocks, and commodities, is an effective means of portfolio diversification. It’s also possible to branch out into ‘alternative’ investments that complement more traditional assets, like private equity, real estate, and collectibles.
  • Individual Asset Diversification – When you invest money in industries and businesses that complement one another (per the example given above), this is one of the most simple and effective ways of ensuring asset diversification. To do this with minimal legwork, many investors buy shares in index funds, which contain a mix of complementary assets that respond favorably.
  • International Market Diversification – Seeking international investment opportunities can be an attractive proposition, helping to protect you from geopolitical disruption and poor economic performance in your home country. Consider the international market and choose assets that complement your existing portfolio.

How to diversify your financial portfolio

Alternative Investments for Diversifying Financial Portfolio

When it comes to diversifying your financial portfolio, the more pots you can spread your money across, the more protected you’ll be from risk. So, as well as investing in traditional assets like shares, stocks, and bonds, you might want to consider putting your money in alternative investment opportunities too.

Below, we look at a handful of alternative investments that can help take your asset portfolio diversification to the next level.

  • Gold – for many investors, gold is an essential diversification asset as it helps to protect against inflation and rising interest rates.
  • Commodities – from sustainable energy reserves to agricultural products and timber, investing in commodities is a powerful way to diversify your portfolio with valuable, physical assets. Any asset that features natural resources may be considered a high-value, low-risk proposition that may really strengthen your portfolio.
  • Real estate – Buying residential, commercial, or retail property is considered by many as another safe strategy that can bolster your asset list. A great fallback asset, real estate usually maintains its value well and is considered a low-risk option compared to shares and stocks, so it’s a complementary investment to have on your books.
  • Hedge funds – hedge funds are designed to reduce risk while aiming to guarantee maximum ROI for investors. Lending your backing to a hedge fund can be a good way to distribute your assets without having to deal first-hand with a complex trading infrastructure.
  • Collectibles, art, and antiques – there are all sorts of high-value collectibles that you can invest in with the purpose of retaining wealth and making a profit as items appreciate in value in the future. From rare wines to art and antiques, having some collectible items in your portfolio offers a usually low-risk fallback option.
  • Private equity – Private equity consists of capital that is not listed on a public exchange. It’s considered an alternative investment class since private equity valuations aren’t set by market forces. Since it’s set apart from public markets, private equity can be an effective way to balance public and private assets, thus helping to limit risk.

At Glint, we make every effort to demonstrate a balanced conversation between gold, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.
 
To learn more, visit our homepage or give us a call at +44(0)203 915 8111.

 

Gold vs Silver Investment: Pros and Cons

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Before we begin, it’s worth noting that at Glint we don’t offer any investment advice. What follows is intended to help you in your understanding of terms as well as potential pros and cons of investing in gold and silver.

Investing in a precious metals like gold or silver may be considered by many as a safe bet for your money. But aside from the initial purchase cost, how do you decide which metal is the right asset for you?

While gold and silver are both precious metals – a type of commodity that is generally considered by many as a safe investment – there are certain factors that affect their long-term value. It’s important to understand what these are before you invest, so you can be sure you’re putting your money in the right place.

Again, Glint doesn’t offer any investment advice, however, to help you choose the right precious metal to invest your money in, we’re taking a look at the pros and cons of gold and silver, and the things you should consider. Whilst we are passionate about gold, we’re not involved in investments, so you can rest assured the information here is completely impartial.

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The Key Differences Between Gold and Silver Investment

Investing in gold and silver may sound comparative, but the reality is there is a lot that separates these two precious metals. Below, we take a look at the key differences between gold and silver that could affect your decision to invest.

Silver is More Readily Available

The volume of new silver pulled from the earth is considerably higher than gold, with close to 1 billion ounces brought into the silver supply market each year. In contrast, the total volume of new gold currently sits at around 120 million ounces per annum.

What does this mean for the value of silver? Because it’s more prevalent and readily available, silver is nowhere near as valuable as gold, and is, therefore, less able to offer as great a long-term return. It is, however, much cheaper to buy, so new investors will need to weigh up whether silver is worth their time and money.

The prevalence of silver also has an impact on its price volatility. With such a liquid market for silver, its value can increase and decrease at a much higher rate than gold, so investors need to be prepared for silver’s unpredictable and volatile value profile.

The Applications for Silver Make it an Important Commodity

Of all the precious metals, silver is among the most widely used in day-to-day applications, particularly in the industrial and manufacturing sectors. Indeed, over 50% of the total supply volume of silver is used for industrial purposes, compared to around 10% of gold.

Why is silver so prevalent within industrial sectors? Firstly, its affordability and ready supply make it much easier to source than other metals. It’s also renowned for its electronic and thermal conductivity, which makes it an indispensable component within the manufacturing sector.

This is all well and good, but why is it important for investors? Given the industrial demand for silver, this goes some way to explaining its widely fluctuating pricing. For example, in a strong economy when demand for raw materials is high, the price of silver goes up; when there’s a recession, demand drops, and with it silver’s value.

In contrast, the value of gold is less likely to suffer such industry-related value volatility. With only a small proportion of total annual gold reserves used in industry, its value is scarcely affected by commercial demand, and more readily influenced by other factors, including economic outlook and currency values.

Silver is Much Larger than Gold – Meaning Significant Storage and Administrative Costs

One of the key differences between gold and silver that many would-be investors fail to grasp is the difference in size and weight between the two precious metals.

Silver is much less dense than gold, with pure silver being up to 84% larger than pure gold by volume. That means that a huge amount more space is needed to store silver reserves than gold – and with that comes significant storage, logistics, and related costs.

To put the size-to-value difference between gold and silver into perspective, here’s a quick example. Say you invested $10,000 in gold; you could hold the total volume of metal in one hand. If, however, you invested the same in silver, you’d need around two medium-sized boxes to carry it all.

The size-to-value variation between gold and silver may not seem all that important from an investment point of view. But with silver requiring significantly more storage, logistics, and transportation infrastructure, administrative costs are something to consider. Add to that the fact that silver requires very specific storage conditions compared to gold (to avoid tarnishing) and managing the commodity safely and securely in the long term can require careful planning and budgeting.

The Pros and Cons of Investing in Gold

Interested in buying gold? Take a look at our essential guide to the pros and cons of this precious metal below to find out if it’s the right commodity for you.

The Pros 

  • Retains its value exceptionally well – gold is considered one of the very best assets in which to invest your money, with reliable and predictable value retention that make it a safe bet in the long and short term.
  • Can be used as an inflation hedge – because gold is a physical commodity, it’s considered a safer means of hedging against inflation. So, when the value of more liquid assets drops due to peaks and troughs in the economy, gold is used as a potential safe haven to avoid the likely losses associated with inflation.
  • It’s a popular portfolio diversification asset – for the reasons listed above, gold is among the most popular assets for investors looking to strengthen their portfolios against financial shock. It allows investors the opportunity to balance the volatility of their other assets against a steadfast, physical commodity, which ultimately provides greater fiscal confidence in times of uncertainty.
  • Investing in gold is easy – compared to other assets (particularly those associated with the stock market) gold is very easy to invest in, making it a popular choice for new and beginner investors. Click here to learn more about the benefits of investing in gold.

The Cons

  • Storage, insurance, and admin fees – while the logistical costs of storing and securing gold aren’t as expensive as silver, they’re no less a consideration. Storing gold in a vault typically means you’ll be subject to storage and insurance fees.
  • Minimal income generation – as with all precious metals, gold isn’t considered an income stream. Instead, it’s more of a security against financial turbulence, which is why investors typically use it to diversify their portfolio.

The Pros and Cons of Investing in Silver

The Pros

  • Affordable – silver is cheaper to buy outright than gold, so if you’re looking to kick-start your investment portfolio on a small budget, it could be a good option.
  • A safe long-term asset – while the value of silver is much more volatile than gold, it’s still a physical commodity, which means it’s a safer place to put your money. That means, much like gold, it can be used to hedge against financial uncertainty.
  • Decent rate of return if sold at the opportune moment – given the huge peaks and troughs in value that silver experiences, you could make a return on your investment if you choose to sell at the right moment.

The Cons

  • Expensive to store and manage – as outlined above, silver is among the most expensive precious metals to store, transport, and manage. Be sure to factor such costs into your investment decision.
  • Minimal income generation – like gold, silver offers little in the way of income, and unless you’re very savvy, you may find it difficult to make a return by selling it on at the right moment.
  • Poor liquidity – because silver is a physical asset, it can’t be easily utilized as day-to-day currency. You can change it into a currency within your country of origin, but this may accrue additional fees and service charges.

 

At Glint, we make every effort to demonstrate a balanced conversation between gold, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline. 

To learn more, visit our homepage or give us a call at +44(0)203 915 8111.

What is Fiat Money? How it Works with Examples

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Have you heard the term ‘fiat money’ but aren’t sure what it means? Perhaps you want to learn the difference between fiat currency and commodity currency?

You’ve come to the right place. In this guide, we’re taking a close look at fiat money to show you how it works, how its value is decided, and how it compares to other forms of currency. Use the links below to navigate or read on for the complete guide.

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What is Fiat Money?

Fiat money is any currency that lacks actual value. Instead, it’s a legal tender issued and backed by world governments.

Historically, the value of currency was backed by physical commodities, such as gold and silver.

It may surprise you to learn that the money in your wallet is intrinsically valueless. It can’t be converted or redeemed into anything tangible and is instead purely used as a mode of payment.

Fiat money relies on tight fiscal control by regulatory bodies, which allow its use in specific territories by government decree. For this reason, it’s vital that fiat money is managed responsibly and ethically, with efforts made to reduce counterfeiting and mismanagement.

The concept of fiat money might sound modern, but it’s been around since at least 1000 AD, when it was first introduced in China. It didn’t, however, become prevalent in the Western World until the 20th century, when countries such as the UK and US began converting the pound and the dollar into fiat-based currency systems.

How Does Fiat Money Work?

As touched on above, fiat money isn’t backed by commodities like precious metals. Its value instead comes from the faith people have in it and the government tasked with regulating it.

One of the key reasons fiat money was introduced in the first place was to increase the liquidity of day-to-day currencies. Modern paper money is designed to offer a simple, flexible way for people to buy and sell goods, without the need for complex trade negotiations.

What’s more, the nature of fiat money allows for greater buying confidence and monetary freedom. For example, if a business wants to expand its operations by investing heavily, fiat money allows for this without the need for physical commodities to be exchanged – helping to accelerate economic and societal growth.

So, how is the value of fiat money controlled and regulated? Because it’s not reliant on a set commodity amount, other factors come into play to decide its value, including interest rates, inflation, and economic performance. Even things like political instability can affect the value of fiat money, which is why people continue to invest in commodities like gold.

In short, fiat money only works if consumers have confidence in it. This relies on responsible management by standing governments, who must also demonstrate creditworthiness and tight regulatory control.

What Are the Pros and Cons of Fiat Money?

Fiat money is now the prevalent form of capital throughout the world. But why is it used? And what are its strengths and weaknesses?

Let’s take a closer look at the pros and cons of fiat money.

Pros

One of fiat money’s key strengths is it’s an asset that’s easy to control and predict – which is crucial in avoiding economic shocks, such as recession.

Remember: governments themselves control fiat money, which gives them more breathing room in terms of supply and value than other forms of currency. Though care is needed, central banks have the power to create more money when market conditions require it, which can help to cushion the economy against periodic fluctuations.

For example, following the 2008 financial crash, fiat money was used strategically to lessen the impact on the US financial system. How??

Cons

Naturally, as with any form of currency, fiat money has its disadvantages, chief among which being the very essence of its value. Those critical of fiat money and successive governments’ reliance on it question how it will maintain its value in the long term, particularly as more cash is brought into circulation.

Unlike commodities, fiat money is backed by nothing other than its perceived value. But what happens when too much money is brought into the economy, and denominations cease to hold the value they once did?

Critics of fiat money suggest that its value cannot be guaranteed in the future. This is in direct contrast to commodity-based money, for which there is a supply of precious metals and other assets that offer the potential for long-term value.

Remember, too, that the supply of fiat money is seemingly unlimited, while reserves of commodities such as gold and other alternatives like cryptocurrencies, are limited. This suggests that commodities are ultimately more stable in the longer term.

Fiat Money Examples

Fiat money has risen to become the world’s most prevalent form of money, and very few global currencies are now true commodity-based currencies. Well-known examples of fiat money include the US dollar, pound sterling, and the euro, with the US, UK and all European nations operating on a fiat-based currency system.

It’s important to note, however, that many countries use a combination of currencies, including fiat and commodity money. This is to offer the best line of defense against economic shock, while maintaining the right level of value and monetary demand.

Why Do Governments Use Fiat Money?

By now you should have a reasonable grasp of the role, advantages, and pitfalls of fiat money. But why exactly has the currency come to dominate the global economic landscape, with most world governments relying on it as a principal form of currency?

Managed correctly, and fiat money serves as a powerful resource for governments, allowing for predictable and tight control of current economic conditions. If it’s utilized responsibly, it provides the very best means of fulfilling the roles of a strong economy, including storing value, providing a means of numerical accounting, and facilitating streamlined exchange.

Most of the problems associated with fiat money arise from improper management and use. For example, if a government prints too much money, quantitative easing, this can lead to hyperinflation, which can be hugely economically damaging in the long term.

For individuals looking to save money and store it somewhere safe, the fiat system may not offer the most secure or profitable conditions. That’s why we’re seeing a rise in currency alternatives – with gold chief among them.

 

We hope this guide has shed light on how fiat currency works and what it means for your money. If you’re looking for a safe, secure, and reliable way to save and use your money, we invite you to discover Glint – the payments platform that enables you to buy, sell, save, and spend real, allocated gold, even at the checkout, on anything from a coffee to a family holiday using your Glint App and Mastercard®.

At Glint, we make every effort to demonstrate a balanced conversation between gold, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.
 
To learn more, visit our homepage or give us a call at +44(0)203 915 8111.