What Is Fiat Currency? In the crypto world, we often refer to plain old non-digital money with the term “fiat currency.” Let's explore more in this article.
What Is Fiat Currency?
The English word “fiat” means “declaration” or “pronouncement.” The implication is that fiat money has no inherent value. It is valuable only because the government declares it to be.
Historically, the word “fiat” has been used disparagingly by those who opposed the abandonment of the gold standard for national currencies. Under the gold standard, paper money represented ownership of a share of the government's store of gold. People liked knowing their money was backed by gold. When governments left the gold standard, they said, the paper money had value only because the government said so – by fiat.
Fiat currencies today are valuable because of their buying power, which is determined by supply and demand, not because the government says so. By holding reserves and carrying out monetary policy, national banks support the value of money but do not directly control it.
Since cryptocurrencies are not backed by physical assets like gold or silver, they are also in sense fiat currencies. They get their value from supply and demand, just like paper money.
Nonetheless, the word “fiat” is well-entrenched as the crypto community’s way of referring to government-issued money.
What Is Fiat Currency? A Short Explanation - Hopefully, this article can help you to get some knowledge.
