When you’re reading your bank statement or dipping into your pocket for some change, it’s easy to assume your money is stable – it doesn’t disappear overnight or suddenly melt away. But the truth is, your money is not stable. History has shown us time and time again that money is dependent on external factors and can quickly collapse under the wrong circumstances.
What’s an unstable currency?
Money in the form of coins and bills only represent an amount, they’re not physically worth that amount. A $5 bill costs only 15.5 cents to make and a $50 bill only 16.1 cents. This is ‘fiat money’ – money issued by governments, like the US dollar or the British pound – and can only be used to buy things because people agree on its value.
However, this agreement is fragile. If people start to disagree and doubt how much a currency is worth, the value of the currency changes. This happens all the time, all around the world, and is why prices, exchange rates, and stock markets rise and fall.
When the value of a currency stays consistent for prolonged periods of time, it’s assumed to be a stable currency. For example, the US dollar has typically been seen as stable because the country is viewed as politically and economically strong. Its reputation is such that other countries like Ecuador and Panama have adopted the U.S. Dollar as their local currency. But as will be explained further on, the COVID-19 pandemic may see the US dollar become far less stable.
Unstable currencies can lead to high-risk economies, meaning other countries may be less likely to trade with them, interest rates could increase, and investment could drop. Essentially, unstable currencies threaten the economic growth of the country, and the quality of life of its residents.
What causes money to become unstable?
Political factors like war, a new government, and unemployment rates impact the stability of money. Any change that causes people to panic and make instinctive financial movements (e.g. suddenly selling their stocks) can have a ripple effect and jeopardize the overall dependability of a currency. COVID-19 is a prime example, as currencies from all regions have plummeted in value. There are also fears that in the aftermath of the pandemic, the US dollar could weaken by as much as 35 percent.
The speed at which governments print their currencies also contributes to instability. The more physical money that exists, the lower its value and the more unstable it becomes. Printing more money often results in inflation, when the price of goods rises but the value of the currency falls. Hyperinflation is an extreme form of this; for example, in 2019 Venezuela’s inflation rate stood at around 10,000 percent a year, in the 1940s, inflation in Hungary meant prices doubled every 15 hours, and Zimbabwe once had an inflation rate of 98 percent per day. No currency nor country is immune to the possibility of inflation.
The COVID-19 pandemic and economic uncertainty has led to the United States printing the dollar at a much faster rate. While the objective is to inject money into paralyzed markets and make it easier for people to get credit, the action comes with real risks.
Supply and demand are key to stability too. The more in-demand a currency is, the more stable it can become. The problem is that currencies which are perceived to be unstable or in danger of becoming so, are less likely to be in demand and therefore continue to lose their value.
Is there a truly stable alternative to paper currencies?
Gold. The precious metal is one of the most reliable and stable forms of money you can own. Its durability is linked to its physical qualities, the limited amount of gold in the world, and its historical value as a universal currency. For many people, gold is low risk because it’s not as susceptible to speculation and market variations, so while other currencies fluctuate, gold stays stable.
Even during economic crises, the price of gold isn’t impacted. In fact, people often turn to gold to protect their money against pending market crashes. After the 2008 financial crash, gold increased from $681 per ounce to $884 – one of the only markets to make a gain at the time.
Gold is so stable that countries around the world store gold in their Central Banks as a way to protect their currencies and guarantee that they can repay debts. But if governments have access to the power of gold, why don’t regular people?
With this question in mind, Coro has created a mobile app to give everyone access to the value and stability of gold as money. Using the world’s most advanced and secure payment technology, users can easily buy, send, and save gold. Unlike fiat currencies, gold is universally accepted as a form of money. You can even gift gold to your loved ones.