Why is fiat currency more vulnerable to dramatic economic shifts than currency on the gold standard?

Question

Responses

Fiat currency is generally used in countries with weak economies.

Fiat currency is backed by silver, which is less valuable than gold.

Fiat currency is backed by the government, so it is not as stable as gold.

Fiat currency includes government bonds and the gold standard does not.

Answer 1

The most accurate response to why fiat currency is more vulnerable to dramatic economic shifts than currency on the gold standard is:

Fiat currency is backed by the government, so it is not as stable as gold.

Fiat currency derives its value from the trust and confidence of the people who use it and the stability of the government issuing it. In contrast, the gold standard is based on a physical commodity (gold), which can provide a more stable basis for currency. If a government faces economic instability or mismanagement, the value of fiat currency can fluctuate significantly, while the intrinsic value of gold generally remains stable.