Fiatgeld

Fiatgeld, or fiat money, is a currency whose value is established by government decree rather than by a physical commodity or a stock of precious metals. In fiat systems, the currency is declared legal tender and is widely accepted for transactions and the settlement of debts, even though it has little intrinsic value beyond the trust and authority behind it. Most modern economies operate with fiat money, while earlier systems used gold standards or other commodity bases.

Value in a fiat system does not depend on a material asset. Instead, it rests on the credibility of the issuing government or central bank, the stability of the economy, and legal frameworks that require acceptance for payments. The monetary authority controls the money supply and uses policy instruments such as interest rates to influence inflation, employment, and growth.

Advantages of fiat money include flexible monetary policy, easier adjustment of the money supply to changing conditions, and the ability to support financial systems and fiscal needs. Its main risks involve inflationary pressures if supply grows too rapidly, loss of confidence if institutions become unstable, and exchange-rate volatility in open economies.

Fiat money contrasts with commodity money and with representative money that is backed by reserves. In practice, fiat currencies have become the standard in nearly all countries since the 20th century. Digital forms, such as central bank digital currencies, are digital representations of fiat money, while most cryptocurrencies operate independently of government backing.