Fiat money: Difference between revisions
(Created page with '==Definition== '''Fiat money''' is a currency (paper money) accepted as defining ingredient::money through a government decree. Specifically, by government decree, it serves...') |
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* It can be used by individuals to pay taxes to the government, and it can be used by the government to meet its payments. | * It can be used by individuals to pay taxes to the government, and it can be used by the government to meet its payments. | ||
The extent to which fiat money comes to play the | The extent to which fiat money comes to play the role of money depends on the credibility of the government and its monetary and fiscal policy. In situations of [[hyperinflation]], for instance, fiat money becomes worthless and people revert to [[commodity money]]. | ||
Latest revision as of 01:12, 10 July 2013
Definition
Fiat money is a currency (paper money) accepted as money through a government decree. Specifically, by government decree, it serves the following roles:
- It is treated as legal tender: if one person meets a debt by paying using the currency, the payment is considered valid in a court of law. Thus, legal claims on money can be settled using the currency.
- It can be used by individuals to pay taxes to the government, and it can be used by the government to meet its payments.
The extent to which fiat money comes to play the role of money depends on the credibility of the government and its monetary and fiscal policy. In situations of hyperinflation, for instance, fiat money becomes worthless and people revert to commodity money.