why do modern economies favor fiat money 
most countries used some sort of gold standard or backing by a commodity before the 20th century the limited amount of gold coming out of mines and in central bank vaults couldn t keep up with the value that was being created however as international trade and finance grew in scale and scope this caused serious disruptions to global markets and commerce fiat money gives governments greater flexibility to manage their currency set monetary policy and stabilize global markets it also allows for fractional reserve banking which lets commercial banks multiply the amount of money on hand to meet demand from borrowers 