What is a fiat currency?

Fiat money is a currency without intrinsic value that has been established as money, often by government regulation”

The value of money has to be based on something of value, so people can count on its value and trust that it is stable over time. For this reason, many countries have migrated to a fiat currency.

A fiat currency is legal tender whose value is backed by the government that issues it.

This approach differs from money whose value is underpinned by some physical good such as gold or silver, called commodity money. No currency currently backs its currency with gold, but many have in the past, including the UK who were forced to leave the gold standard in 1931 after speculative attacks on the pound.

The United States used a gold standard for most of the late 19th and early 20th century. A person could exchange U.S. currency, as well as many public and even some private debts for gold as late as 1971.

There is no country which does not use fiat money. It is the natural evolution of currency. There is no need to back the money by any single commodity. Fiat currency is backed by the whole economy of the issuing country or every single product/service produced by it.

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