Fiat Money

What is Fiat Money?

“Fiat money” is basically government-produced currency. It is not backed by a tangible good like gold or silver, but rather by the government that created it. The stability of the government issuing fiat currency and the interaction between supply and demand determine its value. The majority of contemporary paper currencies, including the U.S. dollar, the euro, and other significant world currencies, are fiat currencies.

As opposed to gold, which is a fixed and limited resource, central banks have much more influence over the supply of fiat money. It provides them the authority to control economic factors like the availability of credit, liquidity, interest rates, and the velocity of money.