What is fiat money?
Fiat money is a type of currency issued by the government that is backed by the authority's reputation and not by physical assets such as silver or gold. Moreover, most countries only use banknotes as fiat money or currency for payment purposes. The fiat money examples include important international paper currencies such as the US dollar and the Euro.
The value of the fiat money system is derived from the balance of supply and demand since it has no intrinsic value. It also replaces commodity money (made from precious metals) and representative money (funds that can be exchanged). Although it leads to economic stability, it can also cause hyperinflation.
Understanding Fiat Money
Fiat money can be used to pay for goods and services in a country. The value of fiat money depends on how well the country performs economically, politically, and socially and how it influences the interest rates. Fiat money cannot be exchanged for any other asset or redeemed for anything else.
The government protects fiat money from counterfeiting and manages its supply and demand. A country with a stable political system can have a strong fiat currency that allows people to buy more things. On the other hand, a country with a weak political system can have a weak fiat currency that reduces people's purchasing power.
10 Global Fiat Currencies
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($) US Dollar
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(¥) Japanese Yen
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(د.إ) United Arab Emirates Dirham
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(¥) Chinese Yuan
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(€) Euro
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($) Australian Dollar
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(£) British Pound
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(₹) Indian Rupee
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($) Mexican Peso
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($) Canadian Dollar