Some currencies are backed by a specific commodity, such as gold, silver or a non-metallic currency such as oil. Other currencies are not backed by anything and are known as fiat currencies. Fiat monetary systems are not known for longevity. The average fiat system fails every couple of decades.

Willful Monetary Reform

New currencies are generally put into place after the old currency has been devalued. The majority of fiat currencies are destroyed when the government willingly changes the currency through monetary reform. Sometimes, the government revalues the currency. Other times, the government will switch to an entirely different currency, such as a currency that is backed by commodities.

Currency Life Spans

The amount of time that it takes for fiat currencies to eventually fail varies from currency to currency. Some currencies only lasted a month, while others have lasted for centuries.

Hyperinflation

Fiat currencies eventually inflate. Essentially, more money is printed over time and the value of that money diminishes. Most societies will tolerate some level of inflation begrudgingly. However, when the treasury prints money excessively, the value of the currency will fall rapidly. For the general consumer, this esoteric monetary concept manifests itself in higher prices. With hyperinflation, prices can sometimes rise every day. When governments seek to impose price restrictions, businesses stop producing products as they are no longer profitable and there are then shortages.

Loss of Government Backing

Fiat currencies also can lose their value when the government no longer guarantees its value through taxation. This does not always lead to a loss of value, however.

Regime Change

The only other way that fiat currencies are eliminated is through a regime change. Of course, if a country is invaded and the old currency is taken out of circulation, the fiat currency perishes. However, this can happen with any currency.

Fiat Currencies are Doomed

Regardless of what causes the demise of the fiat currency, they always eventually fail. Part of the reason why fiat currencies fail is that there is always a temptation by governments to print more money as a way to solve monetary problems, regardless of the consequences. With more stable currencies, such as those backed by gold, the currency will always have value in proportion to the amount of gold backing it.