The word “Fiat currency” refers to the money that is used every day. The United States dollar, like other current currencies in circulation across the globe, is a fiat currency.
Fiat currency values are often sustained by a government’s economic strength. This is not the same as an asset-backed currency, which gets its value from an actual asset.
An asset-backed currency, for example, would be one based on the value of gold. Asset-backed currencies may also be legal tender, although the international monetary system has emphasised fiat currencies since the Great Depression.
The term “fiat currency” is now commonly used to differentiate conventional money from cryptocurrencies. Cryptocurrency is a type of payment that was formed digitally and may exist without the assistance of a central bank.
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