Skip to content
Know.itKnow.it
Create an animated lesson
On request

This article is free to read. Creating a lesson uses your daily or stored credits; review the language and settings before starting.

What is fiat money?

FinanceLesson on requestFree to read

Quick answer

Fiat money is currency that has value because a government says it does — not because it's backed by gold or another physical commodity. Its worth comes from trust in the issuing government and its acceptance for trade and taxes.

Key things to understand

  1. It's money not backed by a physical commodity.
  2. Its value rests on government decree and public trust.
  3. Almost all modern national currencies are fiat.
  4. It gives governments flexibility to manage the economy.

People also ask

What is fiat money?
Government-issued currency that has value by decree and trust, rather than being backed by gold or silver.
Why does fiat money have value?
Because people trust the issuing government and accept it for goods, services, and paying taxes.
What's the difference between fiat money and the gold standard?
Gold-standard money is convertible to gold; fiat money is not backed by any physical commodity.