What is Fiat Money?

✅ What is Fiat Money or Fiat Currency?

Fiat money is a type of currency issued by a government that has no physical backing, such as gold or silver. Its value is based on the creditworthiness and trust in the issuing government.

1️⃣ Value: The value of fiat money arises from the relationship between supply and demand, as well as the stability of the issuing government.

2️⃣ Examples: Most paper currencies in the world, such as the dollar, euro, and rial, are fiat currencies.

3️⃣ Economic Control: Fiat money enables governments to exert greater control over the economy through their central banks. Central banks achieve this by regulating the amount of fiat currency in circulation.

4️⃣ Risk of Inflation: One of the risks of fiat money is that excessive printing by the government can lead to inflation in the economy.

🔸 Another term for fiat money is “government-backed money.” Fiat money differs from commodity money, where the currency itself is made of a valuable commodity like gold.