FIAT MONEY
- January 8, 2021
- Posted by: OptimizeIAS Team
- Category: DPN Topics
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FIAT MONEY
Subject: Economics
Context: There are parallels between bitcoin and gold. Both are the opposite of fiat money—i.e., their value is independent of any controlling authority—and both have a limited stock of supply.
Concept:
- Fiat money is government-issued currency that is not backed by a physical commodity, such as gold or silver, but rather by the government that issued 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 as is the case for commodity money.
- Most modern paper currencies are fiat currencies, including the U.S. dollar, the euro, and other major global currencies.
Fiat Money vs Legal Tender
- Fiat money has no intrinsic value, while legal tender is any currency declared legal by a government.
- Governments can issue fiat currency and make it legal tender by setting it as the standard for debt repayment.
- 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.
- The U.S. dollar , Indian Rupee etc are both fiat money and legal tender.