Table of Contents




Fiat Money



Currency that a government has declared to be legal tender, despite the fact that it has no intrinsic value and is not backed by reserves




The term fiat money is used to mean:
  • any type of money that the government declared to be legal, or in use.
  • state-issued money which is neither legally convertible to any other thing, nor fixed in value in terms of any objective standard.[2]
  • money without intrinsic value.[3]
The term derives from the Latin fiat, meaning "let it be done", as the money is established by government decree. Where fiat money is used as currency, the term fiat currency is used. Today, most national currencies are fiat currencies, including the US dollar, the euro, and all other reserve currencies, and have been since the Nixon

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Summary:

Most of the money that is paper in the world is considered fiat money. Because fiat money is not linked to physical reserves, it risks becoming worthless due to hyperinflation. If people lose faith in a nation's paper currency, the money will no longer hold any value.