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Username: LuckyMan

Rating:
Guru Stars

Asked to: Heng Kim

Date Created: 24 Oct 2017
Category 28
Tag Financial
Question What is 'Fiat Money'?
Advice from Guru
Hello LuckyMan,

Fiat money is currency that a government has declared to be legal tender, but it is not backed by a physical commodity. The value of fiat money is derived from the relationship between supply and demand rather than the value of the material that the money is made of. Historically, most currencies were based on physical commodities such as gold or silver, but fiat money is based solely on the faith and credit of the economy.

Fiat is the Latin word for "it shall be."

Because fiat money is not linked to physical reserves, it risks becoming worthless due to hyperinflation.

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