Fiat currency is a type of currency that is issued by a government and is not backed by a physical commodity, such as gold or silver. This type of currency is used in most countries around the world and is the most commonly used form of money. Fiat currency is based on faith in the issuing government, and its value is determined by the supply and demand in the market.
The term “fiat” comes from the Latin word “fiat”, which translates to “let it be done”. This term is used to describe the government’s decision to issue currency without backing it with any physical commodity. In other words, the government is essentially saying “let it be done” and allowing the currency to be used as a form of payment.
Fiat currency is not backed by any physical commodity, which means its value is determined by the supply and demand in the market. This means that the value of the currency can fluctuate depending on the economic conditions of the country. If the economy of a country is doing well, then the value of its currency will likely increase. Conversely, if the economy is struggling, then the value of the currency will likely decrease.
Fiat currency is also subject to inflation, which is the increase in the general level of prices of goods and services over time. This means that the purchasing power of the currency decreases over time, as the prices of goods and services increase. Inflation is usually caused by an increase in the money supply, which is the total amount of money in circulation.
Fiat currency is the most common form of money used in the world today. It is issued by governments and is not backed by any physical commodity. Its value is determined by the supply and demand in the market and is subject to inflation.