Fiat

Fiat currency is government-issued money with no intrinsic value. Unlike commodity-backed money, its worth is not tied to gold or silver but rests entirely on trust in the issuing government or central bank. The word "fiat" comes from Latin, meaning "by decree," and governments declare by law that their currency is legal tender. Historically, fiat money first appeared in China around 1000 AD and became the global standard in the 20th century as countries abandoned the gold standard.

Central banks manage the money supply by issuing currency and setting interest rates, giving governments powerful tools to stabilise the economy. During slowdowns they can expand supply to stimulate spending; during high inflation they tighten it. This flexibility is fiat money's greatest strength, but also its main risk: without a physical limit, excessive issuance can erode purchasing power and, in extreme cases, trigger hyperinflation as seen in Weimar Germany and Zimbabwe. Compared with cryptocurrencies, fiat money is centrally controlled and widely accepted in everyday commerce, while crypto is decentralised with a fixed maximum supply. For a deeper breakdown, see our full guide on fiat currency.