What is Fiat Currency?

Fiat currency is a type of money that has no intrinsic value and is not backed by any physical commodity. It derives its value from the government decree or law which declares it to be legal tender for settling debts, making payments, and storing wealth. Fiat currencies are typically issued by central banks or governments and can take many forms such as paper notes, coins, digital tokens, etc.

The main advantage of fiat currency over other types of money is that it allows governments to control their own monetary policy without having to rely on external factors like gold reserves or foreign exchange rates. This gives them more flexibility in managing inflation levels and economic growth. Additionally, since fiat currencies are widely accepted around the world they make international trade easier than ever before. However, one downside of using fiat currency is that it can be subject to devaluation if too much money is printed leading to hyperinflationary conditions in some cases.

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