Fiat Money
FEE-at MUN-ee
/ˈfiːæt ˈmʌni/
Inconvertible paper money made legal tender by a government decree.
Its value is not derived from any intrinsic commodity (like gold or silver) but from government decree and public trust.
The story behind the word. The word 'fiat' comes directly from Latin, meaning 'let it be done' or 'it shall be.' It's the third-person singular present subjunctive of 'fieri,' meaning 'to become' or 'to happen.' So, 'fiat money' is money whose value exists simply because a government 'decrees' or 'lets it be' accepted as such.
Word relationships
- paper money: More general, can include commodity-backed paper money.
- commodity money: Money whose value comes from a commodity of which it is made (e.g., gold coins).
Commonly confused with
- Cryptocurrency: Cryptocurrency is decentralized and not issued by a government, whereas fiat money is centrally issued and regulated.
Collocations
- modern fiat money
- government-issued fiat money
- digital fiat money
Example sentences
- "Unlike commodity money, fiat money has no intrinsic value but is accepted because the government declares it to be legal tender." Discussing economic theory.
- "Most modern national currencies, including the US dollar and the Euro, are forms of fiat money." Explaining modern monetary systems.
Memory hook
FIAT sounds like 'FEE-AT' the government's command. The government says 'Let it be money!' and so it is. Government decree
When not to use
Do not use 'fiat money' to refer to all money; some historical currencies were commodity-backed. Use 'currency' for the general term.
Fun facts
- The transition from commodity-backed money to fiat money was a significant shift in economic history, giving governments more control over monetary policy.
Related words
Explore more words
decree, Hyperinflation, edict, Purchasing power, Derivatives, Monetary Policy
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