What is Fiat Currency?

Today I would like to introduce you to fiat currencies, something we have been using all our lives, but did you know exactly what you are using here? Nowadays it is used all over the world to buy products or services and therefore it is important to know exactly what it is.

You can read the original definition on the website of the U.S. Federal Reserve. For better understanding, I have highlighted the most important statements and terms here where I think it makes sense, and I am sure you will learn something new here as well. Note: The Fed has used the term money incorrectly here, of course, the Fed is talking about fiat currency here.

Fiat “Money” from the Federal Reserve Website:

Fiat money is money that does not have intrinsic value and does not represent an asset in a vault somewhere. Its value comes from being declared “legal tender”-an acceptable form of payment-by the government of the issuing country. In this case, we accept the value of the money because the government says it has value and other people value it enough to accept it as payment. For example, I accept U.S. dollars as income because I’m confident I will be able to exchange the dollars for goods and services at local stores. Because I know others will accept it, I am comfortable accepting it. U.S. currency is fiat money. It is not a commodity with its own great value and it does not represent gold-or any other valuable commodity-held in a vault somewhere. It is valued because it is legal tender and people have faith in its use as money.1

In summary:

  1. Fiat Currency does not have an intrinsic value
  2. Does not represent an asset
  3. Its value comes from being declared
  4. Acceptable form of payment-by the government
  5. We accept the value of the fiat currency because the government says it has value
  6. It is not a commodity
  7. It does not represent gold-or any other valuable commodity
  8. Currency is fiat
  9. It has value because people have faith that it has value

After reading this, I’m almost sure you’re reconsidering what you put your trust in. There are much better ways to secure your wealth: Sound Money.

Article Source:

  1. https://www.stlouisfed.org/education/economic-lowdown-podcast-series/episode-9-functions-of-money#:~:text=The%20characteristics%20of%20money%20are,%2C%20limited%20supply%2C%20and%20acceptability.

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