Merits of Using Asset-Backed Currency
Silver crypto-currency means that the value of money used in the country is derived from the prices of silver in the country. The government come up with fiat money system where monetary value is determined by the authorities. The value of money is not affected by the government under the silver backed currency system. Therefore if a country is using silver backed currency means that the value of money is affected the prices of silver. This is because the supply of silver is the primary factor that will determine the value of money under the silver backed current. The following are benefits of using silver backed currency.
Silver backed currency helps in maintaining the optimal amount of money supply in the economy. One of the causes of inflation is excessive money supply. This, in turn, leads to loss of value in the currency used in a country. Whereas low money supply leads to deflation. Inflation and deflation are two of the major concerns affecting economic growth negatively. All these things can be avoided by using silver backed currency. The reason is that the currency value is based on a physical commodity which has a limited supply. By controlling money supply a country is able to have a stable economy. Use of fiat currency system have seen some countries experience economic difficulties. This is where the government falls to manage the value of the country’s currency thus creating negative impacts on the economic. Therefore these countries are advised to consider using asset-backed currency.
Silver backed currency is essential in avoiding economic collapses due to bubbles. This is because the values of money is based on tangible assets such as silver that has fixed quantity of supply in the economy. Economic bubbles have led to collapse of economies in various countries. The reason is that people acquire debt to buy assets that increase in value rapidly with hopes of selling later at a profit. The lending institutions give people loans which are beyond their wealth. The problem is that the rapid increase in value of the asset is not stable and will suddenly drop leading to substantial loses. Silver backed currency offers a way to prevent economic bubbles from happening the first place. The scarcity of silver is what makes it ideal for backing currency. What makes the rapid increase in value of assets that causes economic crash is due high demand due to availability of funds thus limiting money supply is the solution to these economic problem. Thus avoiding instances where assets double in value overnight thus keeping the economy at a stable rate and avoids economy crash.