Here’s one of the main answers to the question “Why buy gold and silver?” Simply because no fiat currency last forever.
In this article:
Below is an edited and abridged synopsis of an article by Jeff Clark
You may not know how old your national currency is, or even know what ‘fiat’ means, but all currencies have failed.
That’s the message from Mike Maloney in the first installment of his new video series, “The Top 10 Reasons I Buy Gold and Silver.” Reason #10 is that all the world’s currencies are fiat, and fiat currencies always fail.
Jeff looked through history to provide documentation of Mike’s claim. But he ran into a problem: there were too many currencies to include in the article. So he looked at those that went bust since the beginning of the 20th century. There were still too many. So he looked at those since he was born in 1958 — still too many.
He cut it off at 1975, the year gold was made legal to own again in the US, and still found 17 of them.
Bear in mind that every single one of these currencies is now worthless. They’ve all gone bust, whether they got there quickly or took a century or more. And they’re not all from third-world countries, either.
A fiat currency relies on faith, and if it’s not backed by anything (like gold), leaders eventually succumb to the temptation to create more and more currency to solve their financial problems. And that dilution has always and inevitably led to extinction. What’s scary is that, for the first time in recorded history, all of today’s currencies are fiat.
That’s why Mike believes that before the end of this decade, an economic crisis will hit that will eclipse the Great Depression and the 1929 stock market crash. It could be best thing that happens to you if you own gold and silver.
History has a clear message for us: All fiat currencies eventually go to zero.
With the US dollar backed by nothing, debt piling higher every month, all managed by central bankers and politicians that haven’t learned anything from history, it’s up to us to protect our assets with the one currency that can’t be debased, devalued, or destroyed—gold.
So what about New Zealand? With New Zealand being such a young country, surely the New Zealand monetary system surely hasn’t changed much at all since the New Zealand was colonised has it?
Well, even New Zealand has some interesting monetary and currency history. Hat tip to A.E. for this link to wikipedia on New Zealand Legal Tender history:
As A.E. wrote to us, “of course, everyone now “knows” that monetary systems are forever ;)”
New Zealand has a complex history of legal tender. English law applied, as applicable to local circumstances, from either 6 January 1840, when the Governor of New South Wales by proclamation annexed New Zealand, or from 14 January 1840 when Captain Hobson Royal Navy was sworn in as Lieutenant-Governor. The English Laws Act 1858 subsequently confirmed that English legislation passed prior to 14 January 1840 was and had been the law of New Zealand, as applicable to local circumstances. The (UK) Coinage Act 1816 therefore applied and British coins were confirmed as legal tender in New Zealand. Unusually, until 1989, the Reserve Bank did not have the right to issue coins as legal tender. Coins had to be issued by the Minister of Finance.
The history of bank notes was considerably more complex. In 1840, the Union Bank started issuing bank notes under provisions of British law, but these were not automatically legal tender.
In 1844, ordinances were passed making the Union Bank banknotes legal tender and authorising the government to issue debentures in small denominations, thus creating two sets of legal tender. These debentures were circulated but were traded at a discount to their face value because of distrust of the colonial government by the settler population. In 1845, the Ordinance was disallowed by the British Colonial office and they were recalled, not without first causing a panic among holders of the debentures.
In 1847, the Colonial Bank of Issue became the only issuer of legal tender. In 1856, however the Colonial Bank of Issue was disbanded and through the Paper Currency Act 1856, the Union Bank was confirmed once again as an issuer of legal tender. The Act also authorised the Oriental Bank to issue legal tender but this bank ceased operations in 1861.
Between 1861 and 1874, a number of other banks including the Bank of New Zealand, Bank of New South Wales, National Bank of New Zealand and Colonial Bank of New Zealand were created by Acts of Parliament and authorised to issue bank notes backed by gold, however these notes were not legal tender.
The 1893 Bank Note Issue Act allowed the government to declare a bank’s right to issue legal tender. This enabled the government to make such a declaration to assist the Bank of New Zealand when in 1895 the bank encountered financial difficulties that could have led to its failure.
In 1914, the Banking Amendment Act gave legal tender status to bank notes from any issuer and removed the requirement that banks authorised to issue bank notes must redeem them on demand for gold (the gold standard).
In 1933, the Coinage Act created a specific New Zealand coinage and removed legal tender status from British coins. In the same year the Reserve Bank of New Zealand was established. The bank was given a monopoly on the issue of legal tender. The Reserve Bank also provided a mechanism through which the other issuers of legal tender could phase out their bank notes. These banknotes were convertible into British legal tender on demand at the Reserve Bank and remained so until the 1938 Sterling Exchange Suspension Notice that suspended provisions of a 1936 amendment of the 1933 Reserve Bank of New Zealand Act.
In 1964, the Reserve Bank of New Zealand Act restated that only notes issued by the Reserve Bank were legal tender. The Act also ended the right of individuals to redeem their bank notes for coin, effectively ending the distinction between coin and notes in New Zealand. The Act came into force in 1967 establishing as legal tender all New Zealand dollar five dollars banknotes and greater, all decimal coins, the pre-decimal sixpence, the shilling, and the florin. Also passed in 1964 was the Decimal Currency Act, which created the basis for a decimal currency, introduced in 1967.
As of 2005, banknotes were legal tender for all payments, and $1 and $2 coins were legal tender for payments up to $100, and 10c, 20c, and 50c silver coins were legal tender for payments up to $5. These older style silver coins were legal tender until October 2006, after which only the new 10c, 20c and 50c coins, introduced in August 2006, are legal.
So a key date in New Zealand monetary history was in 1914 when New Zealand followed what had already taken place in much of the rest of the world and “removed the requirement that banks authorised to issue bank notes must redeem them on demand for gold (the gold standard).” New Zealand currency became fiat currency from this date on and has remained so until this day.
This was of course as a result of the first world war and the demand to create vast amounts of currency to fund the war. Had this law not been passed, as it become obvious how much currency was being created to fund the war, people would have taken their bank notes to their bank and requested gold coins in return.
But with this ability removed governments were free to issue all the currency they wanted to fund the first world war.
Another law was passed 5 years earlier that made this change possible. See this article for more on that: Prof. Antal Fekete: The Ignored Anniversary – Episode 04/17
So it may seem like the New Zealand Dollar has been around for a very long time. But the history above shows how much it has changed in the last 100 years. History also shows that the fiat currency that is the New Zealand Dollar won’t be around forever either. Be sure you have some financial insurance in the form of gold and silver in case that day arrives in your lifetime.
For more reasons as to why to buy gold and silver that are still very relevant today, see these articles: