What is Fiat currency?
January 13th, 2010 | 
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It is money which value does not represent any fixed amount of a commodity. Fiat money does only have a value because the government says it has a value, and that the law says it has to be accepted in its home country as payment. Fiat currencies includes the Dollar, the Euro, the Yen or most other modern day currencies.
The opposite is a representative money, like the Dollar on the gold standard, where one dollar was worth a fixed amount of gold.
Fiat money is the favored system nowadays because it gives central banks more tools to help the economy in hard economic times, like purposefully imposing inflation when facing the risk of deflation.
On the other hand if a fiat currency is not managed properly, it can potentially go in to hyperinflation. Something that is not possible for a currency on the gold standard.
Posted in fiat currencies
The Punto. It’s at a fixed rate of 1-to-1 with the American Pinto.
I know it was an easy gag, but really, *that* many thumbs down?!
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One based on a government authority, rather than some other commodity, like say gold.
References :
http://en.wikipedia.org/wiki/Fiat_currency
A fiat currency has no real value. It may be manipulated to increase or decrease its tracing value, but it is not denominated in anything that is real.
A real currency might be denominated in kg of rice, or steel, or gold, or kWh of electricity. With a fiat currency there is no real thing related to the currency. It has no real value.
References :
It is money which value does not represent any fixed amount of a commodity. Fiat money does only have a value because the government says it has a value, and that the law says it has to be accepted in its home country as payment. Fiat currencies includes the Dollar, the Euro, the Yen or most other modern day currencies.
The opposite is a representative money, like the Dollar on the gold standard, where one dollar was worth a fixed amount of gold.
Fiat money is the favored system nowadays because it gives central banks more tools to help the economy in hard economic times, like purposefully imposing inflation when facing the risk of deflation.
On the other hand if a fiat currency is not managed properly, it can potentially go in to hyperinflation. Something that is not possible for a currency on the gold standard.
References :
http://en.wikipedia.org/wiki/Fiat_currency
Fiat currency is money without any physical backing. It is far easier to manipulate for monetary policy. Fiat money has intrinsic value in the sense that the issuing government (lets say USA) promises to accept the currency as payment when it collects taxes. So in an odd way, every time you buy a pop you are saying "I will give you $1 worth of tax payment power for that tasty beverage"
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