1) Ok, I was asked to simplify my explanation of fiat currency. Incoming drunk asshole close enough to be correct explanation of fiat currency. Apologies in advance to the aneurisms I will cause to anyone more familiar with economics.
2) Fiat currency is a currency that is effectively backed by two things. The economic value of the country producing that currency, and the supply of that currency in circulation.
3) A productive prosperous country such as the United States will generate a higher demand for their currency, increasing the value. The central bank for a country will constantly produce that currency for its banks to distribute, lowering the value of it.
4) In general, a fiat currency will tend to decrease in value slightly. This is called inflation, and its a baked in feature of fiat currencies.
5) If you know your dollar today would be worth only 97 cents in a year, you would want to spend or invest it today to get something or to grow your money faster than the rate of inflation. This spending and investing drives the economy forwards.
6) This is why bitcoin is fucking retarded. You're heavily disincentivized from spending it because in a year the value will probably increase from demand, and the bitcoin mining program has artificially limited the supply of bitcoins driving up the value further.
7) The rising value of money is called deflation. Deflation is baaaaaad. Why spend a dollar today if it will be worth 1.10 tomorrow? No spending, no economic growth.
8) The central banks also will sometimes draw money out of circulation if the inflation rate is increasing. See, while inflation is good, too much inflation is bad. Thats called hyper inflation.
9) If your dollar today is going to be worth 50 cents soon, then you're just gonna be poor period.
10) So, central banks work to keep inflation at a low steady rate for the sake of stability. The US federal reserve is REALLY good at this, so good the US currency backs many other currencies.
11) Backed currencies. Not the official term, but its close enough. Used to be, the dollar and many other currencies were backed by gold and/or silver. You knew a dollar was worth x amount of gold and/or silver. Problem: thr values of these currencies fluctuated far too much.
12) You never knew if your money was going to be worth more or less in a few weeks. Once the dollar became fiat currency and its value was stabilized, other countries used the USD and other stable fiat currencies to back their currency.
13) Ie, oh, the rial is backed by the dollar, push come to shove I can always trade in rials for dollars and be close to fine in a pinch.
14) So where does this go wrong for Iran? First, know that central banks work best when independent of political influence. Trying to achieve political ends by controlling the supply of currency is a recipe for unintended consequences and disaster.
15) Iran's central bank isnt independent. When Ahmenijehad or however the fuck you spell the previous iranian president's name tried to influence central bank policy, he kept firing and replacing its leadership.
16) A religious council which is appointed by the supreme leader meant to resolve conflicts between the secular parts of government then gave the supreme leader and religious authorities de facto control over the central bank.
17) SWIFT sanctions happened. SWIFT is the system all banks worldwide communicate through. Without SWIFT, you're cut off from the world's money. Iran sees demsnd for Rials drop overnight, destroying their value.
18) This drop is so bad the rials value doesnt recover even after SWIFT sanctions are lifted. Then in 2016 the regime uses its control over the central bank to drop the us dollar, one of the best currencies in the world as a reserve/backing currency, as a backing currency.
19) Faith in the value of and thus demand for the currency drops overnight. Again. Oh, and this entire time, the central bank is made to keep generating currency and not resolving the increasing fuck it calling it now hyperinflation. Drop demand, increase supply. Iran's fucked.
20) Now, one of the only things holding any value left for the rial, the reserve currency backing it, is having to be used to pay the military. Because the rial is now only valued as a jizzrag (money makes shit toilet paper, trust me. Maple syrup emergency and canadian dollars.)
21) Dropped demand, the supply of the rial still isnt slowing down in growth, and now the regime is plundering the money you're not supposed to touch period ever end of fucking story, meaning that the 'at least i know its worth a few of ____' option is gone now.
22) Regime change is coming via demonstrably economic fucking morons. /end
