Fiat meaning is a currency that has been established as a valid form of money, usually supported by a government regulation that declares it to be legal tender. The term fiat originated from Latin and its original meaning stands for a word used to describe a government decree, order or resolution. By definition, fiat money is a currency that does not have any intrinsic value as it is not backed by a physical commodity and is usually made of a worthless or low-value material (such as a small piece of paper). Even so, fiat money is widely accepted as a means of payment.
Other than government approval and regulation, the primary reason why fiat money is considered valid and valuable in our society is due to a collective belief. In other words, the fiat value is highly dependent on a collective agreement that it has market value and may be used as a medium of exchange, with an intrinsic purchasing power. Thus, the acceptance of fiat money is greatly dependent on a government decree along with a social expectation. If either the social belief or the government decree gets compromised, the real value of the currency, as a means of payment, is quickly and greatly reduced.
Because most fiat currencies are not supported by precious metals like gold, silver or copper, central banks are able to cause large variations in the supply of money, and this may result in extremely high inflation rates, when an excess amount of paper money is printed.
In conclusion, fiat meaning is a currency that is established as a form of money, and is backed by the government and the masses.
