Financecalendar_todayLast updated: Apr 2026
What is Fiat Currency?
/ˈfiːæt ˈkʌrənsi/
Money that a government has declared to be legal tender, but is not backed by a physical commodity like gold. Its value derives entirely from government decree and public trust.
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Everyday Example
The £20 note in your wallet is essentially a piece of paper. It's worth £20 not because of the paper itself, but because the UK government guarantees it and millions of people agree to accept it as payment.
publicReal-World Application
“When the US abandoned the gold standard in 1971 (Nixon Shock), the dollar became pure fiat currency. Every major world currency today is fiat — a global experiment in trust at massive scale.”
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Did you know?
The gold standard — where currencies were directly backed by gold reserves — dominated global finance until WWI. Fiat currency allowed governments to fund wars and manage economic crises more flexibly.
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Key Insight
Fiat currency works as long as people believe it does. Hyperinflation occurs when that belief collapses — as in Weimar Germany (1923) or Zimbabwe (2008), where governments printed money until it became worthless.
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