Fiat Currency. Fiat currency, also called fiat money, is legal tender whose value is backed by the government that issued it. Fiat money (from Latin: fiat, "let it be done") is a type of money that is not backed by any commodity such as gold or silver, and typically declared by a decree from the government to be legal tender.
However, governments must be careful to avoid over-circulation, as this would cause a drop in value. Pro of Fiat: fiat currency holds no intrinsic value of its own aside from the value. The currency derives its value solely or exclusively from the government's backing.
The old currency gets exchanged for new currency and off we go.
Most modern currencies, such as the U.
Fiat Currency Problems The history of fiat currencies is filled with problems where there was either hyperinflation or a complete loss in all value due to mismanagement by central banks. Instead, its value depends on how a country's economy performs and how the people in charge manage it. It has value because the government declares it to have value, and that it is legal tender to pay all things including taxes.