If you follow alternative financial media, you'll often hear dollars derisively referred to as 'fiat currency.' What exactly does this term mean and why is it often used as a slur? Investopedia defines fiat money as a government-issued currency not backed by a physical commodity such as gold or silver.
If you follow alternative financial media, you'll often hear dollars derisively referred to as fiat currency. What exactly does this term mean and why is it often used as a slur? Investopedia defines fiat money as a government-issued currency not backed by a physical commodity such as gold or silver. So, what is fiat backed by? The full faith and credit of the issuing government. In other words - nothing. Fiat money is just paper .
This limits the issuance of new money, minimizing inflation and keeping the value of money relatively constrained and constant. Think of it this way: when you make more of a thing, the value of the other thing decreases. If you have 100 widgets and make 100 more, the value of each widget will decrease The same is true for dollars. When you make more dollars, each individual dollar is worth less and it buys less.
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