Fiat Money

economy · money · government

Value by Declaration. Fiat money is worth something simply because the government declares it to be legal tender. There's no gold vault backing it up, just the promise and authority of the government.

Created by Central Banks. A country's central bank creates fiat money under the government's permission. The central bank controls how much money exists and manages the currency to keep the economy healthy.

Used Worldwide Today. Since 1976, almost every major country in the world uses fiat money instead of the older system where currencies were tied to gold. This gives governments more flexibility to manage their economies.

Trust Makes It Work. Fiat money only works when people believe in it and trust that others will accept it. If everyone suddenly stopped trusting a currency, it could lose its value very quickly.

No Physical Backing. Unlike old currencies that promised you could trade paper money for actual gold, fiat money isn't backed by any precious metal or physical treasure. It's backed only by the government's authority and people's confidence.