Fiat money is money that has value only because of government regulation or law. The term derives from the Latin fiat, meaning "let it be done", as such money is established by government decree. Where fiat money is used as currency, the term fiat currency is used.
Fiat money originated in 11th century China, and its use became widespread during the Yuan and Ming dynasties. The Nixon Shock of 1971 ended the direct convertibility of the United States dollar to gold. Since then all reserve currencies have been fiat currencies, including the dollar and the euro.
Characteristics
The term fiat money has been defined variously as:
A feature of all fiat money is its acceptability to the government for payment of taxes and charges.
Fiat money is not essential for large countries, nor is it always used. An economy may function on banknotes issued by commercial banks, which are not legal tender, and hence not fiat money. This was the situation in the United States during periods prior to 1862, before the first United States Notes were created and declared by the government to be legal tender. From 1944 to 1971, the Bretton Woods agreement fixed the value of 35 United States dollars to one troy ounce of gold. Other currencies were pegged to the U.S. dollar at fixed rates. The U.S. promised to redeem dollars in gold to other central banks. Trade imbalances were corrected by gold reserve exchanges or by loans from the International Monetary Fund. This system collapsed when the United States government ended the convertibility of the US dollar for gold in 1971, in what became known as the Nixon Shock.
A fiat-money currency generally loses value once the issuing government refuses to further guarantee its value through taxation, but this need not necessarily occur. For example, the so-called Swiss dinar continued to retain value in Kurdish Iraq even after its legal tender status was withdrawn by its issuer, Iraq's central government
Hence, My conclusion is Today's Money have no real value and backing except Government guarantee and people's faith and of course monetary economy. This perception of value can change any time. That is the reason why sometimes GOLD becomes so Precious.
Fiat money originated in 11th century China, and its use became widespread during the Yuan and Ming dynasties. The Nixon Shock of 1971 ended the direct convertibility of the United States dollar to gold. Since then all reserve currencies have been fiat currencies, including the dollar and the euro.
Characteristics
The term fiat money has been defined variously as:
- any money declared by a government to be legal tender.
- state-issued money which is neither convertible by law to any other thing, nor fixed in value in terms of any objective standard.
- money without intrinsic value
A feature of all fiat money is its acceptability to the government for payment of taxes and charges.
Fiat money is not essential for large countries, nor is it always used. An economy may function on banknotes issued by commercial banks, which are not legal tender, and hence not fiat money. This was the situation in the United States during periods prior to 1862, before the first United States Notes were created and declared by the government to be legal tender. From 1944 to 1971, the Bretton Woods agreement fixed the value of 35 United States dollars to one troy ounce of gold. Other currencies were pegged to the U.S. dollar at fixed rates. The U.S. promised to redeem dollars in gold to other central banks. Trade imbalances were corrected by gold reserve exchanges or by loans from the International Monetary Fund. This system collapsed when the United States government ended the convertibility of the US dollar for gold in 1971, in what became known as the Nixon Shock.
A fiat-money currency generally loses value once the issuing government refuses to further guarantee its value through taxation, but this need not necessarily occur. For example, the so-called Swiss dinar continued to retain value in Kurdish Iraq even after its legal tender status was withdrawn by its issuer, Iraq's central government
Hence, My conclusion is Today's Money have no real value and backing except Government guarantee and people's faith and of course monetary economy. This perception of value can change any time. That is the reason why sometimes GOLD becomes so Precious.
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