Fiat money

Fiat money is a type of currency that is issued by a government and declared by law to be legal tender, meaning it must be accepted as a form of payment within the country for all debts, public and private. Unlike commodity-based currencies, such as those historically backed by gold or silver, fiat money has no intrinsic value and is not backed by any physical commodity.

The value of fiat money is derived from the economic stability and creditworthiness of the government that issues it, along with the trust and confidence that the public has in its ability to maintain its value. Because it is not linked to a physical reserve, fiat money allows central banks greater control over the economy because they can regulate the amount of money printed, thus managing economic variables such as interest rates, inflation, and unemployment.

Examples of fiat currency include the US dollar, Canadian dollar, and the Chinese digital yuan, among others. These currencies are used globally for international trade and as standard benchmarks in foreign exchange markets. The shift to fiat money has facilitated more flexible monetary policies and greater financial stability in modern economies, albeit with a dependency on the trust in and management by the issuing authorities.