what is fiat money in economics

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. Fiat money serves only as a medium of exchange, because its use as such is authorized by the government; it has no intrinsic value. Fiat money in extremis is accepted by nobody. 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 currencies not only destabilize economies but undermine the moral basis of society. Fiat money is simply paper that has been made legal tender by government decree. Money may or may not have intrinsic value. What, you may ask, is fiat money then? 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. At times, the commodity itself actually was used as money. Gold is always accepted.” Defenders of fiat currency schemes claim that they promote stable prices and moderate economic volatility. Most modern economies are based on a fiat money system. Fiat money is a foreign exchange that is declared as approved tender or method of economic transaction by the federal authorities or regulation. Fiat money serves only as a medium of exchange, because its use as such is authorized by the government; it has no intrinsic value. The Fed reports several different measures of money, including M1 and M2. Hence, the value of fiat money is derived from the relationship between supply and demand. Well, the US dollar, the euro, the Chinese renminbi, the Japanese yen and the Swiss franc are all fiat monies. Fiat money, in a broad sense, all kinds of money that are made legal tender by a government decree or fiat. By definition, its intrinsic value is significantly lower than its face value. Money may or may not have intrinsic value. https://www.khanacademy.org/.../v/commodity-money-vs-fiat-money Commodity money has intrinsic value because it has other uses besides being a medium of exchange. 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 . 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. For instance, the use of gold, grain, and even furs and other animal products as commodity money preceded the current fiat system. Examples of fiat money include coins and bills. #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. Unlike commodity money, fiat money is not backed by any physical commodity. The Fed reports several different measures of money, including M1 and M2. The most important feature of fiat money is the stability of its value, unlike commodity-based money like gold, copper, and silver. In fact, the opposite is true. In case of fiat money, price of foreign exchange comes from the federal authorities or regulation.

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