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Fiat Currency

A fiat currency is a currency that has no intrinsic value and is not backed by a physical commodity like gold or silver. Its value is based solely on the faith and credit of the government that issues it. The term “fiat” comes from the Latin word “fiat,” which means “let it be done.” In the context of currency, it means that the value of the currency is established by government decree, rather than by its intrinsic value.

Fiat currency is typically issued by a government or a central bank, which is authorized to create and distribute the currency. The process of issuing currency typically involves printing paper notes or minting coins, which are then distributed to banks and financial institutions for circulation.

Fiat currencies are backed by the government’s guarantee of their value and by the trust and confidence that people have in the government’s ability to maintain the stability of the currency. This is done through monetary policy, such as setting interest rates and controlling the money supply, to maintain a stable value of the currency.

Individuals or private entities cannot issue their own fiat currency, as the authority to create and issue currency is reserved for the government or central bank. However, some digital currencies that are not issued by a government or central authority, such as Bitcoin, are sometimes referred to as “cryptocurrencies” rather than fiat currencies.

This page was last updated on February 15, 2023.