Fiat Money

Fiat money is a government-issued currency that has no intrinsic value and is not backed by a physical commodity, such as gold or silver. Its value is derived from the trust and confidence that individuals and businesses place in the government that issues it. Fiat currencies allow governments and central banks greater control over the economy because they can manage the money supply and influence inflation, interest rates, and economic growth.

Example

The U.S. dollar and the Euro are both fiat currencies. Unlike historical currencies that were backed by gold or silver, these modern currencies are based solely on the issuing government’s creditworthiness and economic policies. During periods of economic crisis, central banks can print more money or adjust interest rates to stabilize the economy, showcasing the flexibility of fiat money.