FIAT CURRENCY Meaning and
Definition
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Fiat currency refers to a type of currency that is declared by a government to be legal tender, solely by virtue of government decree or fiat. It is a form of money issued by a country's central bank or monetary authority that does not possess intrinsic value and is not backed by a physical commodity, such as gold or silver. This means that its value is not derived from the worth of the material from which it is made, but rather from the confidence and trust that people have in the government or issuing authority.
Unlike commodity-based currencies, fiat currencies are not convertible into a fixed amount of a specific commodity. They are used as a medium of exchange, accepted as payment for goods and services, and are backed by the government's ability to maintain its value and regulate its supply. The government has the power to control and manipulate the supply of fiat currency through various monetary policies, such as adjusting interest rates or implementing quantitative easing.
Fiat currencies are generally accepted as legal tender within the issuing country and are the most prevalent form of currency in the modern global economy. They provide a flexible and efficient means of conducting transactions, as they can be easily exchanged and are widely trusted for their acceptance and liquidity. However, the value of fiat currency is subject to inflation, deflation, and fluctuations in the foreign exchange market, making it susceptible to economic and political factors that can affect its stability and purchasing power.
Etymology of FIAT CURRENCY
The term "fiat currency" originates from the Latin word "fiat", which means "let it be done" or "let it be made". In the context of currency, it refers to government-issued money that has value because it is decreed or declared as legal tender by the government and accepted by the citizens.
Similar spelling word for FIAT CURRENCY
