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What is fiat money? Why is fiat money important in the United States today?

Question:

What is fiat money? Why is fiat money important in the United States today?

Money:

Money refers to a store of value. The money is also used as a mode of payment for goods and services. There are several functions of money as a store of value. It is also used as a unit of account and sometimes also used as a medium of exchange.

Answer and Explanation: 1

Fiat money refers to that money that is legally accepted in a country by government legislation. The currencies which are circulating within the nations are examples of fiat money. It helps the central bank to control the economy by regulating the money supply. Fiat money includes all kinds of money that are legally accepted in the economy. The US earlier didn't use fiat currencies. The US shifted to fiat currency to decrease the use of metals which are mainly used in place of money. The present economic situation of the US is also an important factor that makes fiat money more important in the US economy. The fiat money helps the federal reserve systems gain control over the economy by regulating the money supply. So in an unstable economic situation, fiat money does play an important role in maintaining the economic system.


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Fiat Money: Definition, History & Examples

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Chapter 3 / Lesson 46
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The United States dollar, as well as other major currencies, is valuable only because someone says it is. In this lesson, you'll learn about fiat money and its history. You'll also have a chance to take a short quiz.


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