What Is Fiat Currency?
Also known as: Fiat, Fiat Money, Government-Issued Currency
In short
Fiat currency is money accepted as legal tender whose value comes not from a physical asset like gold but from the authority of the government that issues it and public trust; the Turkish lira, US dollar, and euro are examples.
The word “fiat” means “let it be” in Latin and expresses that the value of the money is determined by decree. The supply of fiat money is managed by central banks; monetary policy is implemented with tools such as interest rates and money printing. This structure, which forms the basis of today's global monetary system, became established worldwide after the US ended the dollar's convertibility into gold in 1971.
In the crypto world, the term fiat is used to distinguish traditional currencies from Bitcoin and other cryptocurrencies. Bitcoin's fixed supply cap of 21 million is often discussed in comparison with the supply of fiat currencies, which central banks can increase, and with their loss of value against inflation. Most stablecoins also peg their value to a fiat currency such as the dollar or euro.
Because fiat currencies are regulated by central authorities, they have advantages such as deposit insurance, consumer protections, and wide acceptance; on the other hand, their value is directly affected by monetary policy decisions and economic conditions. Central bank digital currencies (CBDCs) are being developed as a digital form of fiat money.
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