Fiat money

Fiat money is a type of currency that is not backed by a precious metal, such as gold or silver. It is typically designated by the issuing government to be legal tender, and is authorized by government regulation. Since the end of the Bretton Woods system in 1971, the major currencies in the world are fiat money.

Fiat money generally does not have intrinsic value and does not have use value. It has value only because the individuals who use it as a unit of account – or, in the case of currency, a medium of exchange – agree on its value. They trust that it will be accepted by merchants and other people as a means of payment for liabilities.

Fiat money is an alternative to commodity money, which is a currency that has intrinsic value because it contains, for example, a precious metal such as gold or silver which is embedded in the coin. Fiat also differs from representative money, which is money that has intrinsic value because it is backed by and can be converted into a precious metal or another commodity. Fiat money can look similar to representative money (such as paper bills), but the former has no backing, while the latter represents a claim on a commodity (which can be redeemed to a greater or lesser extent).

Government-issued fiat money banknotes were used first during the 13th century in China. Fiat money started to predominate during the 20th century. Since President Richard Nixon's decision to suspend US dollar convertibility to gold in 1971, a system of national fiat currencies has been used globally.

Fiat money can be:

• Any money that is not backed by a commodity.
• Money declared by a person, institution or government to be legal tender, meaning that it must be accepted in payment of a debt in specific circumstances.
• State-issued money which is neither convertible through a central bank to anything else nor fixed in value in terms of any objective standard.
• Money used because of government decree.
• An otherwise non-valuable object that serves as a medium of exchange (also known as fiduciary money).

The term fiat derives from the Latin word fiat, meaning "let it be done" used in the sense of an order, decree or resolution.