what is fiat money in economics

Fiat money serves only as a medium of exchange, because its use as such is authorized by the government; it has no intrinsic value. Hence, the value of fiat money is derived from the relationship between supply and demand. For instance, the use of gold, grain, and even furs and other animal products as commodity money preceded the current fiat system. Most modern economies are based on a fiat money system. Examples of fiat money include coins and bills. In fact, the opposite is true. The benefit of fiat money is that it gives central banks greater control over the economy, but governments can print too much money and create hyperinflation. Fiat money is the opposite of commodity money, which is money that’s based on a valuable commodity, a method of valuation that was used in the past. Fiat money, in a broad sense, all kinds of money that are made legal tender by a government decree or fiat. The Fed reports several different measures of money, including M1 and M2. By definition, its intrinsic value is significantly lower than its face value. The most important feature of fiat money is the stability of its value, unlike commodity-based money like gold, copper, and silver. At times, the commodity itself actually was used as money. The term is, however, usually reserved for legal-tender paper money or coins that have face values far exceeding their commodity values and are not redeemable in gold or silver . Fiat money in extremis is accepted by nobody. Money may or may not have intrinsic value. Fiat money serves only as a medium of exchange, because its use as such is authorized by the government; it has no intrinsic value. What, you may ask, is fiat money then? https://www.khanacademy.org/.../v/commodity-money-vs-fiat-money Gold is always accepted.” Defenders of fiat currency schemes claim that they promote stable prices and moderate economic volatility. #2: Gold was replaced by fiat money for political rather than for economic reasons. Commodity money has intrinsic value because it has other uses besides being a medium of exchange. The use of fiat money became popular in the 20 th century as governments and banks moved in to protect their economies from the frequent busts of the business cycle. Economic money systems began to be developed for the ... Fiat money often does not meet the general characteristics of money and the market-determined money that it replaces. Fiat currencies not only destabilize economies but undermine the moral basis of society. Well, the US dollar, the euro, the Chinese renminbi, the Japanese yen and the Swiss franc are all fiat monies. In case of fiat money, price of foreign exchange comes from the federal authorities or regulation. Commodity money has intrinsic value because it has other uses besides being a medium of exchange. Money may or may not have intrinsic value. Unlike commodity money, fiat money is not backed by any physical commodity. 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