Fiat money is a government-issued currency that is not backed by a physical commodity, such as gold or silver, but rather by the government that issued it.
The value of fiat money is derived from the relationship between supply and demand and the stability of the issuing government, rather than the worth of a commodity backing it.
Most modern paper currencies are fiat currencies, including the U.S. dollar, the euro, and other major global currencies. Fiat money gives central banks greater control over the economy because they can control how much money is printed.
One danger of fiat money is that governments will print too much of it, resulting in hyperinflation.
Fiat money only has value because the government maintains that value, or because two parties in a transaction agree on its value. The word “fiat” comes from Latin and is often translated as the decree “it shall be” or “let it be done.”