What is Fiat Money?
“Fiat money is similar to representative money except it cannot be redeemed for a commodity, such as gold or silver. The Federal Reserve notes we use today are an example of fiat money.” Federal Reserve Bank of Minneapolis “The definition of money has varied. For centuries physical commodities, most commonly silver or gold, served as money. Later, when paper money and checkable deposits were introduced, they were convertible into commodity money. The abandonment of convertibility of money into a commodity since August 15, 1971, when President Nixon discontinued converting U.S. dollars into gold at $35 per ounce, has made the U.S. and other countries’ monies into FIAT MONEY?money that national monetary authorities have the power to issue without legal constraints.” Anna Schwartz, 1987 “Central bankers’ success, however, in containing inflation during the past two decades raises hopes that FIAT MONEY can be managed in a responsible way. This has been the case in the United States, and th
Fiat money is a form of currency which is deemed valid and legal because the government says that it is, not because it is backed by a commodity such as gold or silver. The United States is one of the most prominent nations which relies on fiat money, although many other countries do as well. There are a number of advantages and disadvantages to this type of currency, and the issues with fiat money have been debated vigorously for centuries by economists and politicians. The term “fiat” refers to a government decree. When a government creates fiat money, it declares that money produced by certain banks or mints is valid legal tender which will be accepted for all government debts, thereby making the currency legal. When the government is willing to accept a specific currency for payment of taxes and other government debts, this also means that everyone else in the society will be willing to accept it in exchange for goods and services. As a general rule, the money is minted by governme
