Fiat currency is legal tender issued by a government, which has no intrinsic value and is not backed by a commodity of value, such as gold or silver. Its value is essentially underpinned by the stability and creditworthiness of the issuing government.
Most major currencies are now classed as fiat money, including the US dollar, pound sterling and the euro, as many developed economies decoupled their currency from an underlying commodity value, gold in particular, in the 20th century. This gives governments and central banks more flexibility to control their country’s economic growth, interest rates, and inflation, by regulating the new issue and supply of currency in circulation.
The term fiat means decree, and in the context of currency, simply means money issued by decree or order of a government.
