ABSTRACT
People’s willingness to use objectively “worthless” fiat money, then, would seem to owe something to a kind of folk memory of the “gold residing in the treasury of the state or the basement of the central bank”. Belief in the illusory value of fiat currency is supported, then, by belief in the no less illusory value of “precious” metal. Credit money operates on the principle of fractional-reserve banking, whereby banks hold reserves equivalent to only a fraction of their deposits. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve.
