What is mean by fiat currency

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Fiat Currency: What is it?

Fiat currency is a type of currency that is declared legal tender by a government, but is not backed by a physical commodity. The value of fiat money is derived from the relationship between supply and demand rather than the value of the material from which the money is made.

Fiat money has been around for centuries, but it was not until the 20th century that it became the dominant form of currency. Before the 20th century, most currencies were backed by a physical commodity such as gold or silver. The value of these currencies was based on the value of the underlying commodity.

Fiat money has several advantages over other forms of money. For example, it is more easily exchanged and is not subject to the fluctuations in the value of the underlying commodity. It is also easier to create new money, which can help stimulate economic growth.

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The main disadvantage of fiat money is that it is not backed by a physical commodity and is subject to inflation. Inflation is when the value of the currency decreases due to an increase in the supply of money. This can lead to a decrease in purchasing power.

Fiat money is the most common form of currency in the world today. It is used by governments, businesses, and individuals to buy and sell goods and services. It is also used to store value and as a medium of exchange.

Overall, fiat currency is a type of currency that is declared legal tender by a government, but is not backed by a physical commodity. It has several advantages, such as being easily exchanged and not subject to the fluctuations in the value of the underlying commodity. However, it is also subject to inflation and can lead to a decrease in purchasing power.

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