Fiat Money Explained: New France's Playing Cards, Bank Loans and Nixon

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Fiat money, from the Latin for let it be done, is currency by government decree with no backing and no claim on any asset, unlike commodity or representative money. The Lagos and Wright search model says it solves the double coincidence of wants, and the Kiyotaki and Wright model treats acceptance as a Nash equilibrium. China's Song dynasty issued the jiaozi, the Yuan dynasty under Kublai Khan made paper the main currency and astonished Marco Polo, and the Song system failed when new notes were printed without retiring old ones. In 1685 in New France, with the silver ship late and soldiers unpaid, intendant Jacques de Meulles cut up the colony's playing cards, wrote denominations on them, signed them and paid the troops, and merchants accepted them.

During the Seven Years' War, France over-issued card money, which became worthless after the British conquest. Today, the Bank of England says most money is created by commercial banks when they lend, and physical cash makes up about 10 percent of broad money in the U.S. and eurozone. Austrian and monetarist economists tie inflation to money creation, while Keynesian and Modern Monetary Theory economists stress the output gap and who receives new money: quantitative easing after 2008 lifted asset prices, while 2020 and 2021 stimulus checks lifted consumer demand. The 1944 Bretton Woods system fixed the dollar at $35 per ounce of gold until 1971, when Nixon ended convertibility after France and others began exchanging dollars for U.S. gold.

• Canada stopped making its penny in 2012, and the U.S. halted penny production in early 2025 because the metal was worth more than a cent.
• George Washington wrote that paper money ruins commerce and opens the door to fraud.
• Karl Marx said the printing press works like a stroke of magic to inflate prices.
• MMT economists tie hyperinflation in Weimar Germany and Zimbabwe to collapsed production, citing the Ruhr occupation and land reforms.
• Central banks target about 2 percent inflation to discourage hoarding and keep room to cut rates.