what is fiat money 
fiat money is a government issued currency that s not backed by a physical commodity such as gold or silver it s backed by the government that issues it the value of fiat money is derived from the relationship between supply and demand and the stability of the issuing government rather than the worth of a commodity backing it most modern paper currencies are fiat currencies including the u s dollar the euro and other major global currencies investopedia ryan oakleyunderstanding fiat moneythe term fiat is a latin word that s often translated as it shall be or let it be done fiat currencies only have value because the government maintains that value there s no utility to fiat money in itself governments would mint coins out of a valuable physical commodity such as gold or silver before fiat currency came about they might have printed paper money that could be redeemed for a set amount of a physical commodity fiat is inconvertible however it can t be redeemed because there s no underlying commodity backing it fiat money isn t linked to physical reserves such as a national stockpile of gold or silver so it risks losing value due to inflation it might even become worthless in the event of hyperinflation the rate of inflation can double in a single day in some of the worst cases of hyperinflation such as in hungary immediately after wwii 1the money will no longer hold value if people lose faith in a nation s currency unlike a currency backed by gold this type of currency has intrinsic value because of the demand for gold in jewelry and decoration as well as in the manufacturing of electronic devices computers and aerospace vehicles history of fiat money in the u s the u s dollar is considered to be both fiat money and legal tender it s accepted for private and public debts legal tender is any currency that a government declares to be legal many governments issue a fiat currency and then make it legal tender by setting it as the standard for debt repayment the country s currency was backed by gold and in some cases silver earlier in u s history the federal government stopped allowing citizens to exchange currency for government gold with the passage of the emergency banking act of 1933 the gold standard backed u s currency with federal gold but it ended completely in 1971 when the u s also stopped issuing gold to foreign governments in exchange for u s currency 23u s dollars have been backed by the full faith and credit of the u s government since that time they re legal tender for all debts public and private but not redeemable in lawful money at the united states treasury or at any federal reserve bank as the printing on u s dollar bills used to claim u s dollars are legal tender rather than lawful money in this sense which can be exchanged for gold silver or any other commodity 4advantages and disadvantages of fiat moneygives central banks greater control over the economy