A Fiat Currency Valuation Model?

JP Koning says:

“But there may be another solution to the backwards induction problem. I’m going to show that the market establishes the value of modern fiat money under a CPI standard in the exact same way that it establishes the value of a very familiar instrument; the standard corporate bond. Since corporate bonds are not subject to the backwards induction critique, then by analogy neither should fiat paper. What follows is a gradual progression from the one to the other with the aim of showing that if you can value a bond you can value a Federal Reserve note.”

This is in response to a David Glasser post on the backwards induction problem for money. The final value for many types of money is zero, so the current price should also be zero. JP slides around this problem by providing an example of corporate bonds which gradually comes to be a near perfect analogy to fiat currency even without any built in demand from taxation. 

Interesting post and it would be worth it to publish this in a more formal venue and manner.




Expert in business development, product development, and direct marketing. Developed strategic sales plans, product innovations, and business plans for multiple companies. Conceived the patent pending Spot Equivalent Futures (SEF) mechanism, which allows true replication of spot and swap like products in the futures space.

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2 Comments on "A Fiat Currency Valuation Model?"

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3 years 4 months ago

Looks like I’m not the only one drawing analogies between currencies and other financial markets. Comparing currencies to ETFs lead to similar conclusions wrt to taxes and inflation.

3 years 4 months ago

I’m sorry but the proposition is nonsense and far from needing a wider audience it should be buried in an unmarked grave at midnight.
Fiat money is backed by the labour of the nation which is indeed the same as a corporate bond. Only state backed money can be created at will and directed wherever. CB’s once the corporation has gone is gone forever.
It’s a clearly ridiculous notion.