What is fiat money (fiat currency)? | Definition from TechTarget (2024)

FAQs

What is fiat money (fiat currency)? | Definition from TechTarget? ›

Fiat money is a government-issued currency that's not backed by a physical commodity such as gold or silver. It's backed by the government that issues it.

What is fiat money? Money that has no value except as the medium of exchange; no intrinsic value to currency (green pieces of paper of US dollar)

A fiat money is a type of currency that is declared legal tender by a government but has no intrinsic or fixed value and is not backed by any tangible asset, such as gold or silver.

Fiat money is a form of currency issued by a government and declared legal tender, though not backed by a commodity. Financial Reporting. Financial reporting empowers businesses to make informed financial decisions by identifying trends and tracking performance.

Fiat is an acronym that stands for Fabbrica Italiana Automobili Torino. It was chosen because it was a cars (automobili) factory (fabbrica) established in Turin (Torino) by Italian people (Italiana).

Fiat money is a government-issued currency that is not backed by a commodity such as gold. Fiat money gives central banks greater control over the economy because they can control how much money is printed. Most modern paper currencies, such as the U.S. dollar, are fiat currencies.

Dollar bills are examples of fiat money because there are no physical commodities backing them. Also, the value of a dollar bill is determined by the government.

Fiat money is a type of currency that is not backed by a precious metal, such as gold or silver, or backed by any other tangible asset or commodity. Fiat currency is typically designated by the issuing government to be legal tender, and is authorized by government regulation.

Bottom line. While fiat money is the predominant type of officially accepted currency, it carries certain risks. Mishandling the money supply, such as excessive printing, can lead to hyperinflation. Political instability can erode trust in the country's government and potentially diminish the currency's value.

The main disadvantage of fiat money is the risk of inflation if it is overprinted. Overprinting can cause a potential loss of value due to its lack of intrinsic worth and dependence on government stability.

Is money still backed by gold? ›

No country currently uses a gold standard. As mentioned above, Britain terminated the gold standard in 1931, and the U.S. did the same in 1933. In 1971, the U.S. fully severed the direct convertibility of dollars into gold. In other words, no country backs its currency by gold.

Prior to 1971, the US dollar was backed by gold. Today, the dollar is backed by 2 things: the government's ability to generate revenues (via debt or taxes), and its authority to compel economic participants to transact in dollars.

The system of money, where the currency of a country is not backed by a physical commodity (e.g. gold) but by a directive from a government that makes it legal, is called a 'Fiat' system.

The U.S. dollar is both fiat money and legal tender. In 1933, the U.S. federal government stopped allowing citizens to exchange currency for government gold.

The auto company that some Americans may still refer to as Chrysler became part of a conglomerate called Stellantis NV (STLA), based in the Netherlands, on Jan. 16, 2021. Fiat Chrysler Automobiles ("FCA") officially merged with PSA Group, owner of the Peugeot automobile brand, at that time.

Bitcoin distinguishes itself from fiat currencies through mechanisms like the Bitcoin halving that controls its inflation.

Why do most nations use fiat money today? Governments are able to exert control over the value of fiat money. Fiat money is stable and will not lose value during economic downturns. Fiat money will maintain its value despite fluctuating exchange rates.

Fiat money is not backed by gold or silver but rather has value only because the government decrees it to be legal tender.

Expert-Verified Answer

The form of fiat money that is commonly used today is digital money. Unlike commodity money, such as gold or silver, which has value due to its own physical properties, fiat money has value only because a government decrees that it does.

Pros of fiat money

Unlike gold, Fiat money is not backed by a commodity, meaning it's not limited or scarce. For this reason, a government has greater control over the currency supply, which can give it the power to manage economic variables such as interest rates, liquidity and credit supply.