Fiat currency is a currency that has been officially legislated by a nation’s government and derives its value from that decree. A fiat currency cannot be converted into anything else, as with gold standard currencies. Its entire worth is derived from legislation. Fiat currency is also known as fiat money.
Fiat currency is usually contrasted against commodity backed currencies such as a gold or a silver standard. With a gold standard, the currency can be traded in for a set amount of gold. With a fiat currency, there is nothing backing it but the holder’s faith in the government. All the currencies in the world are fiat currencies now, and they trade openly on the market to establish their international value (with the exception of pegged currencies).
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