Fiat Money

money · economics · government

Just because government says so. Fiat money gets its value because the government declares it is legal tender and people trust and accept it. Your dollar bill is worth money not because there is gold hiding behind it, but because everyone agrees it should be.

No precious metals required. Unlike older currencies that were backed by gold or silver stored in vaults, fiat money does not need any precious metal behind it. This means governments can create money more flexibly without needing to have enough gold sitting around.

Used almost everywhere today. Since 1976, almost every country in the world uses fiat money for their currency. This happened after the Bretton Woods system ended, which had tied many currencies to gold.

Requires trust to work. Fiat money only works when people believe it has value and are willing to use it for buying and selling. If people stop trusting a currency, it can lose its value very quickly.

Governments can control the supply. Because fiat money is not limited by precious metals, central banks can create more or less money depending on what the economy needs. This gives governments more power to manage the economy.