Fiat Money

Fiat Money – Fiat money is a type of currency that is issued by a government and derives its value from the trust and authority of that government rather than from a physical commodity such as gold or silver. Its value is not linked to tangible assets; instead, it is accepted as legal tender because the government declares it as such. Key Features: Not backed by physical commodities. Value depends on public confidence in the issuing government. Used for everyday transactions in the form of banknotes and coins.

Examples: Major international currencies such as the US Dollar (USD), Euro (EUR), Indian Rupee (INR), and British Pound (GBP) are examples of fiat money. Key Point: Fiat money facilitates flexible monetary policy since governments can control supply, but it also requires careful management to avoid inflation or loss of public confidence.