Fiat Currency

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Definition of 'Fiat Currency'

Fiat currency is a type of currency that is not backed by a physical commodity like gold or silver. Instead, it is declared by a government to be legal tender and is used as a medium of exchange. The value of fiat currency is based on the trust and faith that people have in the government and its ability to maintain its value over time.

Fiat currencies are widely used around the world and are used to purchase goods and services, pay taxes, and settle debts. Examples of fiat currencies include the US dollar, the Euro, the Japanese yen, and the British pound sterling.

One of the advantages of fiat currency is that it can be easily manipulated by governments to control inflation, stimulate economic growth, and regulate the money supply. However, it can also be subject to inflation, devaluation, and other economic factors that can affect its value over time.

Since the rise and popularity of Cryptocurrencies the term Fiat has been used more often to distinguish it from these digital currencies. However, note that governments one day may issue a digital version of their currency and this will also be considered Fiat as it will be backed by the government that issued it.

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