CMR University Bangalore

Topic:
The Instability of Fiat Currency: Causes,
Effects and Potential Solutions

Subject: Oral and Written Communication - 2

Subject Code: CPSAL2021

Submitted By: 1) Nitesh

2) Ravi Kumar
3) Venkatesh M
4) Nitin Kumar
5) Niyatha V
6) Vaishnav Prasad K

Date of Submission: April 10, 2023

 ABSTRACT
This dissertation explores the instability of fiat currency, a growing
concern in today's global economy. Fiat currency, a type of currency not
backed by a physical commodity, has been the backbone of modern
economies for several decades. However, the stability of fiat currency
has become a significant problem due to various factors. The instability
of fiat currency can have significant consequences for the economy as a
whole, including reduced purchasing power, reduced investor
confidence, and increased economic inequality. Therefore, it is crucial to
analyse the causes, effects, and potential solutions to the instability of
fiat currency.

This study utilizes a mixed-methods approach that combines both

qualitative and quantitative research methods to provide a
comprehensive analysis of the issue. The research questions that guide
this study are: What are the causes of instability in fiat currency? What
are the effects of instability in fiat currency? What are the potential
solutions to mitigate the instability of fiat currency?

The findings of this study suggest that inflation, political instability, and
economic crises are the primary causes of the instability of fiat currency.
The effects of the instability of fiat currency include reduced purchasing
power, reduced investor confidence, and increased economic inequality.
The potential solutions to mitigate the instability of fiat currency include
implementing sound monetary policy, reducing political instability,
addressing economic crises in a timely and effective manner, and the
adoption of alternative currencies such as cryptocurrencies.

The significance of this study lies in its ability to provide policymakers

with valuable insights into how to address the issue of the instability of
fiat currency. The study offers a comprehensive analysis of the issue
and potential solutions to the problem. This information can be used to
inform policy decisions aimed at stabilizing fiat currency, thereby
reducing the negative impacts of its instability on the economy.

In conclusion, this dissertation provides a thorough analysis of the

instability of fiat currency, which is a growing concern in today's global
economy. It offers insights into the causes, effects, and potential
solutions to this issue, which can inform policymakers on how to address
this problem effectively.
 ACKNOWLEDGMENT
We would like to thank our OWC-2 teacher Zainab Ali for giving us the
opportunity to thoroughly study a topic of our interest and express our
views through this dissertation. We would also like to thank her for being
very patient with the explanation of each and every aspect of writing a
dissertation. Next, we would like to thank CMR University for providing
us with the opportunity to undertake such a course .
 CONTENTS
Chapter 1: Introduction

 Background information on fiat currency

 Statement of the problem
 Purpose of the study
 Research questions
 Significance of the study
 Scope and limitations of the study
 Definition of terms

Chapter 2: Literature Review

 Overview of the history of fiat currency

 Causes of instability in fiat currency
 Effects of instability in fiat currency
 Potential solutions to mitigate the instability of fiat currency
 Empirical studies on the instability of fiat currency

Chapter 3: Research Methodology

 Research design
 Data collection and analysis
 Data sources
 Ethical considerations

Chapter 4: Results

 Overview of the causes of instability in fiat currency

 Analysis of the effects of instability in fiat currency
 Evaluation of potential solutions to mitigate the instability of fiat
currency

Chapter 5: Discussion

 Implications of the findings

Chapter 6: Conclusion

Chapter 7: References
 INTRODUCTION
Fiat currency is a type of currency that is not backed by a physical
commodity, such as gold or silver. Instead, its value is based on the
trust and faith placed in the government or central bank that issues it.
Fiat currency has been the backbone of modern economies for several
decades, as it provides a flexible and efficient means of conducting
transactions. However, the stability of fiat currency has become a
growing concern in recent times.

Several factors have contributed to this instability, including inflation,

political instability, and economic crises. These factors can lead to a loss
of confidence in the currency, which can have significant consequences
for the economy as a whole. Therefore, it is crucial to analyse the
causes, effects, and potential solutions to the instability of fiat currency.

The study will utilize a mixed-methods approach that combines both

qualitative and quantitative research methods to provide a
comprehensive analysis of the issue.

The research questions that guide this study are as follows:

 What are the causes of instability in fiat currency?

 What are the effects of instability in fiat currency?
 What are the potential solutions to mitigate the instability of fiat
currency?

This study is significant because it addresses a growing concern in

today's global economy. The instability of fiat currency can have
significant consequences for the economy as a whole, including reduced
purchasing power, reduced investor confidence, and increased
economic inequality. This study has the potential to provide
policymakers with valuable insights into how to address this issue.

The scope of this study is limited to the analysis of the instability of fiat
currency. The study will focus on the causes, effects, and potential
solutions to this issue. The study will not address other issues related to
fiat currency, such as the advantages and disadvantages of fiat currency
compared to other types of currencies. The limitations of this study
include the availability of data and the potential for biases in the data
sources used.
The following terms will be used throughout the dissertation and are
defined as follows:

 Fiat currency: A type of currency that is not backed by a physical

commodity and whose value is based on the trust and faith placed
in the government or central bank that issues it.
 Instability: The tendency of fiat currency to experience
fluctuations in value due to various factors, including inflation,
political instability, and economic crises.
 Inflation: A sustained increase in the general price level of goods
and services in an economy over a period of time.
 Political instability: The condition where the government is
unable to maintain law and order, provide basic services, or
ensure the safety and security of its citizens.
 Economic crises: A period of economic downturn characterized
by high unemployment, low economic growth, and a decrease in
the availability of credit.
 LITERATURE REVIEW
This chapter provides a literature review on the instability of fiat
currency. The review will focus on the causes, effects, and potential
solutions to the instability of fiat currency. The chapter will begin by
defining fiat currency and discussing its historical development. It will
then discuss the factors that contribute to the instability of fiat currency.

Fiat currency is a type of currency that is not backed by a physical

commodity, such as gold or silver. Instead, its value is based on the trust
and faith placed in the government or central bank that issues it. Fiat
currency has been the backbone of modern economies for several
decades, as it provides a flexible and efficient means of conducting
transactions. The historical development of fiat currency dates back to
the early 20th century when many countries abandoned the gold
standard in favour of paper money.

There are several causes of instability in fiat currency. One of the

primary causes is inflation. Inflation refers to a sustained increase in the
general price level of goods and services in an economy over a period of
time. When inflation occurs, the value of fiat currency decreases, leading
to a loss of purchasing power.

Another factor that contributes to the instability of fiat currency is political

instability. When there is political instability, the government may be
unable to maintain law and order, provide basic services, or ensure the
safety and security of its citizens. This can lead to a loss of confidence in
the government, which can cause the value of fiat currency to decrease.

Economic crises, such as recessions and depressions, can also

contribute to the instability of fiat currency. During economic crises, there
is often high unemployment, low economic growth, and a decrease in
the availability of credit. This can lead to a loss of confidence in the
economy, which can cause the value of fiat currency to decrease.

The instability of fiat currency can have significant consequences

for the economy as a whole. One of the primary effects is reduced
purchasing power. When the value of fiat currency decreases, it takes
more currency to purchase the same amount of goods and services,
leading to reduced purchasing power.
Another effect of the instability of fiat currency is reduced investor
confidence. When investors lose confidence in a currency, they may
withdraw their investments, leading to a decrease in economic activity.

Increased economic inequality is another potential effect of the instability

of fiat currency. When the value of fiat currency decreases, those who
hold a significant amount of currency may experience a decrease in their
wealth, while those who hold assets such as real estate and gold may
see an increase in their wealth.

There are several potential solutions to mitigate the instability of fiat

currency. One solution is to implement sound monetary policy. This can
include policies such as controlling inflation, maintaining stable
exchange rates, and ensuring the independence of the central bank.

Reducing political instability is another potential solution. This can be

achieved by promoting good governance, ensuring the rule of law, and
reducing corruption.

Addressing economic crises in a timely and effective manner is another

potential solution. This can include implementing fiscal stimulus
measures, ensuring the availability of credit, and supporting job creation.

The literature review highlights the causes, effects, and potential

solutions to the instability of fiat currency. It demonstrates that inflation,
political instability, and economic crises are the primary causes of
instability in fiat currency. The effects of instability in fiat currency include
reduced purchasing power, reduced investor confidence, and increased
economic inequality.
 RESEARCH METHEDOLOGY
This chapter outlines the methodology used in this study to analyse the
case studies on the instability of fiat currency. The chapter begins by
discussing the research design and the data collection methods used.
The chapter then describes the data analysis techniques used to
analyse the case studies.

The research design used in this study is a comparative case study.

Comparative case studies involve analysing multiple cases to identify
similarities and differences between them. This research design was
chosen because it allows for a detailed analysis of the factors
contributing to the instability of fiat currency. The case studies analysed
in this study include Zimbabwe, Venezuela, Argentina, and Turkey.

The data collection method used in this study is secondary data

analysis. Secondary data analysis involves analysing existing data
sources, such as academic articles, reports, and government
publications. The data collected for this study includes information on the
political, economic, and social factors contributing to the instability of fiat
currency in the case studies.

The data analysis techniques used in this study include content

analysis and comparative analysis. Content analysis involves analysing
the data collected for common themes and patterns. The comparative
analysis involves analysing the similarities and differences between the
case studies to identify factors contributing to the instability of fiat
currency.

The limitations of this study include the reliance on secondary data

sources and the potential for biases in the data sources used.
Additionally, the case studies analysed in this study are not exhaustive,
and there may be other factors contributing to the instability of fiat
currency that are not included in this study.

Ethical considerations in this study include ensuring the accuracy and

reliability of the data sources used and avoiding any potential conflicts of
interest. Additionally, the study aimed to maintain objectivity in the
analysis of the case studies and to avoid any potential biases in the
interpretation of the data.

In conclusion, this chapter has outlined the research design, data

collection, and data analysis techniques used in this study to analyse the
case studies on the instability of fiat currency. The methodology used in
this study provides a rigorous approach to analysing the factors
contributing to the instability of fiat currency, and the limitations and
ethical considerations are important to consider in the interpretation of
the findings.
 RESULTS
This chapter presents the results of the analysis of the case studies on
the instability of fiat currency. The chapter begins by summarizing the
key findings from the analysis. The chapter then presents the results for
each of the case studies, including Zimbabwe, Venezuela, Argentina,
and Turkey.

The key findings from the analysis of the case studies are as follows:

 Economic mismanagement and political instability are the primary

factors contributing to the instability of fiat currency.
 The use of inflationary monetary policies, such as printing money,
leads to hyperinflation and a loss of confidence in the currency.
 Political corruption and instability, including election interference
and government corruption, undermine trust in the government
and its ability to manage the economy.
 External economic shocks, such as changes in global commodity
prices, also contribute to currency instability.

Zimbabwe

The analysis of the case study on Zimbabwe found that the primary
factors contributing to the instability of fiat currency were economic
mismanagement and political instability. The government's use of
inflationary monetary policies, such as printing money, led to
hyperinflation and a loss of confidence in the currency. Additionally,
political corruption and instability, including election interference and
government corruption, further undermined trust in the government and
its ability to manage the economy.

Venezuela

The analysis of the case study on Venezuela found that economic

mismanagement and political instability were also the primary factors
contributing to the instability of fiat currency. The government's use of
inflationary monetary policies and price controls led to hyperinflation and
shortages of basic goods. Additionally, political corruption and instability,
including government repression of political opposition, further
undermined trust in the government and its ability to manage the
economy.
Argentina

The analysis of the case study on Argentina found that economic

mismanagement was the primary factor contributing to the instability of
fiat currency. The government's use of inflationary monetary policies and
default on its debt led to hyperinflation and a loss of confidence in the
currency. Additionally, external economic shocks, such as changes in
global commodity prices, also contributed to currency instability.

Turkey

The analysis of the case study on Turkey found that economic

mismanagement and political instability were the primary factors
contributing to the instability of fiat currency. The government's use of
inflationary monetary policies and political interference in the central
bank led to a loss of confidence in the currency. Additionally, external
economic shocks, such as changes in global commodity prices and
geopolitical tensions, also contributed to currency instability.

Comparison of Case Studies

The comparison of the case studies identified commonalities in the

factors contributing to the instability of fiat currency. Economic
mismanagement and political instability were identified as primary
factors in all the case studies. The use of inflationary monetary policies
and political corruption further contributed to currency instability.
Additionally, external economic shocks had a significant impact on
currency stability in some of the case studies.

In conclusion, this chapter has presented the results of the analysis of

the case studies on the instability of fiat currency. The key findings
identified economic mismanagement and political instability as primary
factors contributing to currency instability. The case studies of
Zimbabwe, Venezuela, Argentina, and Turkey illustrate the impact of
these factors on the stability of fiat currency. The comparison of the case
studies highlights commonalities in the factors contributing to currency
instability and provides insights into the challenges facing countries
seeking to maintain currency stability.
 DISCUSSION
This chapter discusses the implications of the findings presented in
the previous chapters for policymakers and the broader global economy.
The chapter discusses the implications of the results for currency
stability, economic growth, and political stability.

Implications for Currency Stability:

The analysis of the case studies highlights the challenges facing

countries seeking to maintain currency stability. Economic
mismanagement and political instability were identified as primary
factors contributing to currency instability. The use of inflationary
monetary policies and political corruption further contributed to currency
instability. Additionally, external economic shocks had a significant
impact on currency stability in some of the case studies.

To maintain currency stability, policymakers need to prioritize sound

economic policies that promote economic growth and stability. This
includes implementing inflation targeting policies, maintaining prudent
fiscal policies, and avoiding excessive government borrowing.
Policymakers also need to ensure the independence of central banks
and avoid political interference in monetary policy decisions.

Implications for Economic Growth:

The analysis of the case studies suggests that currency instability has
significant negative impacts on economic growth. Inflationary monetary
policies and currency devaluation erode the purchasing power of citizens
and discourage foreign investment. Economic mismanagement and
political instability further exacerbate these negative impacts.

To promote economic growth, policymakers need to prioritize stability

and predictability in economic policies. This includes maintaining low
inflation rates, avoiding currency manipulation, and implementing
policies that encourage private sector investment.

Implications for Political Stability:

The analysis of the case studies highlights the interplay between

economic and political stability. Economic mismanagement and political
corruption undermine trust in the government and its ability to manage
the economy. Currency instability further erodes trust in the government
and can lead to political unrest.
To promote political stability, policymakers need to prioritize
transparency, accountability, and good governance. This includes
implementing policies that promote transparency in government
operations, holding government officials accountable for corruption, and
ensuring that the government is responsive to the needs of citizens.
 CONCLUSION
In conclusion, this dissertation has highlighted the challenges facing
countries seeking to maintain currency stability. The case studies of
Zimbabwe, Venezuela, Argentina, and Turkey illustrate the impact of
economic mismanagement and political instability on currency stability,
economic growth, and political stability. The analysis suggests that
policymakers need to prioritize sound economic policies, stability, and
predictability to promote economic growth and political stability.
Additionally, policymakers need to promote transparency,
accountability, and good governance to build trust in the government
and its ability to manage the economy.
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