Fiat
Tue, Apr 15Fiat money is a type of currency issued by a government or central bank that is not backed by a physical asset, such as gold. It encompasses currencies that possess little to no intrinsic value but are recognized as legal tender by the government, including banknotes and coins. As a liability of the issuing central bank, its acceptance and value as a medium of exchange depend on the stability and trust in the government or central bank, which also controls the money supply, theoretically without limits. Most contemporary currencies, like the U.S. dollar, fall under the category of fiat money.
Historically, money was often based on gold or other precious commodities, and this connection persisted into the 20th century. However, the United States officially abandoned the gold standard in the 1970s.
| Taxonomy | Issuer | Form of Money | Value | Recognition | Ledger | Supply |
|---|---|---|---|---|---|---|
| Fiat Money | Issued by a central bank or government | Multiple – including physical cash (coins and banknotes) and reserves held by financial institutions at the central bank | Backed by central bank credit | Centralized, issued, and controlled by the central bank | Unlimited — can be produced by the government when necessary | |
| Cryptocurrencies | Mostly issued by the private sector (notably, there is no legal entity that issues Bitcoin) | Single form (i.e., digital token) | Facilitated by technology such as blockchain and relies on miners' consensus | Decentralized, i.e., distributed ledger database is spread across several nodes/devices on a peer-to-peer network, where each replicates and saves an identical copy of the ledger and updates itself independently | Limited supply retaining the structure as much as possible |
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