The ancient Chinese were the first to experiment with fiat paper money. Records showed that the first paper money was used in China in around A.D. 600s. After 1455, there have been no known references to paper money. Thus, after having 500 to 800 years of paper money experience with repeated episodes of inflation and currency reforms, the ancient Chinese finally gave up using fiat money. Below is the picture of an ancient Chinese paper money used in the 1300s.
Marco Polo, when he first saw such money, was amazed. Europeans could never understand how paper could be valuable. Today, much of our money is not even made of paper?it can even be made up of digital information stored in a computer!
The world is currently using a fiat money standard. Is it so different this time that humanity has finally discovered the secret to make fiat money work? Have central bankers finally found the technique to control price inflation the way an engineer controls a machine precisely via knobs and levers?
As the famous saying by George Santayana goes, ?Those who cannot remember the past are condemned to repeat it.? The wise sees danger ahead and for this reason, will accumulate gold (see What should be your fundamental reason for accumulating gold?).
