Merits of Using Asset-Backed Currency
Asset backed currency is where the value of money is based on precious metals such as gold and silver. The government come up with fiat money system where monetary value is determined by the authorities. In asset-backed currency the government plays a very minimal role in the overall value of money used in a country. Therefore if a country is using silver backed currency means that the value of money is affected the prices of silver. Hence the silver supply in the country becomes the basis on which the value of currency is derived. Below are the main benefits of using silver crypto-currency.
Asset-backed currency play a major role in keeping the money supply in the economy at an optimal level. This is very important because excessive money supply leads to high levels of inflation. This, in turn, leads to loss of value in the currency used in a country. Deflation on the other hand is caused by low money supply. Countries with high levels of inflation or deflation will have adverse economic conditions. Asset-backed currency offers a way to prevent these problems from occurring. This is because silver as a physical commodity is a scarce resource. 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 because the loss of value of money may be caused by the activities undertaken by the government. Such governments should consider switching to silver backed currency.
Silver backed currency is essential in avoiding economic collapses due to bubbles. What makes silver backed currency ideal is that the value of this physical commodity is relatively stable. In the past there have been several economies that have collapsed due to these economic bubbles. This is because to a sudden increase in value of an asset that many people borrow money to acquire. Therefore the banks seem like they are making money out of the air. The problem is that the rapid increase in value of the asset is not stable and will suddenly drop leading to substantial loses. The use of asset-backed currency is ensured to preventing economic bubbles. The physical commodity used to backed the currency should have a stable value and limited in supply. Thus the value of money and assets acquired using more can only appreciate in value steadily. Silver backed asset helps to avoid rapid increase in value of assets that cause the economic bubbles and collapse.