Business, Legal & Accounting Glossary
Money which has no intrinsic value and cannot be redeemed for specie or any commodity, but is made legal tender through government decree. All modern paper currencies are fiat money, as are most modern coins. The value of fiat money depends on the strength of the issuing country’s economy. Inflation results when a government issues too much fiat money.
Fiat money is currency that cannot be redeemed for a commodity with intrinsic economic value. Fiat money only has value by government fiat or decree. Thus, fiat money holds its worth only as long as users believe they will be able to exchange it for goods or services. Most currencies in the world today are fiat money. Historically, most money was not fiat money. Currency that is not fiat money could be either an item of value itself, such as silver coinage or be a note redeemable for something else of value. The gold standard is an example of the latter. Fiat money gradually replaced asset-backed currency because of the many cycles of inflation and deflation that occurred in the 18th and 19th centuries with redeemable currency. Today, most fiat money currencies are traded in the foreign exchange market. While in some sense a given national currency is still strictly labelled fiat money, in practice, it is thus redeemable for not only one other commodity, but many – other (mostly fiat money) convertible currencies.
While modern currency is used on a daily basis to purchase a myriad of items, it is actually considered fiat money because it has no real value on its own; its value directly depends on the issuing country’s economy.
It was fiat money and after I learned that I realized that the money had no intrinsic value and could not be redeemed.
My boss is a real gold bug, and frequently declares that we should not keep our investments in dollars because those are issued by the government with nothing real behind them and are fiat money.
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This glossary post was last updated: 1st November, 2021 | 0 Views.