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I've seen the term "fiat currency" in another question. What is a fiat currency? Are there other types of currency?

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A "fiat" currency is non-convertible paper currency that a government establishes as legal tender. Most countries today are using fiat currencies. The rest have currencies pegged (or convertible to) US Dollars (which is a fiat currency).

In the past, money was usually based on precious metals such as gold or silver. Until the end of the gold standard, you could theoretically go the the US Treasury with a US Note or Federal Reserve Note and convert the note into a fixed quantity of gold or silver (depending on the note). The US had a bi-metallic currency policy for political reasons, which means that money was backed by both gold and silver.

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In short. A fiat currency is money that has value only because (usually) a government says it does.

A counter example (non-fiat currency) is a gold coin that has intrinsic value usually because it is made of valuable materials that people would trade goods/services. That is the value comes from what you are holding more than what it represents.

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    Keep in mind that the "intrinsic" value of some commodity based mediums of exchange has some fiat properties as well. Gold is a great example -- it isn't useful for much, and the psychological perception of its intrinsic value is driven by many complex factors over history. Outside of that context, the that value vaporizes. When the Iroquois traded with the colonial Dutch, French and English, they (at least initially) laughed at payments made in silver, and preferred wampum (seashell belts), guns or other things. – duffbeer703 Dec 5 '10 at 14:16
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    Anyone who thinks commodities would make a great monetary system and wants to return to the gold standard clearly hasn't looked at a graph of commodity prices: those suckers are crazy volatile. Oh, the price of gold has doubled, hmm? Well, turns out that means your mortgage debt has doubled too! Good luck, and welcome to deflation! (The current US dollar is much more predictable, QE2 or no QE2.) – user296 Dec 5 '10 at 17:11
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    "Oh, the price of gold has doubled, hmm? Well, turns out that means your mortgage debt has doubled too!" Not if your mortgage is denominated in gold, which it would be under a gold standard (either directly, or by way of a currency that is bound to gold). Whether one talks about USD, CHF, XAU or XAG is basically irrelevant to that discussion. – a CVn May 30 '12 at 12:29
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    @fennec "commodity prices: those suckers are crazy volatile" But the graphs of commodity prices such as gold are not showing the value of the gold, it is showing the value of the dollar. The supply of gold is relatively constant, thus the thing that is changing value is the fiat currency. E.g., if the dollar value halves then the price of gold doubles. The intrinsic value of the gold did not change, the fiat currency did. Update: Sorry, just realized this thread is really old. :-( – James Apr 3 '17 at 14:57
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    @TechMedicNYC It's true that all things are relative, but if the fluctuation of gold was really a fluctuation of the dollar then going from $400 to $1600 an ounce in recent years would imply you'd also be able to buy only 25% as many potatoes, real estate projects, vacations, computers, gallons of gasoline, Euros, British pounds sterling, pork bellies, frozen concentrated orange juice, everything... before recovering. As this clearly didn't happen, the only meaningful way to frame it looking at value of all the world's output as a whole is that most of the volatility lies in the gold itself. – user296 Apr 5 '17 at 11:11
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"fiat" in Latin means "let it be" or "let it happen" - as in "fiat lux!" meaning "let there be light!". Thus, fiat money means money that are created by the government decree - they would be random worthless pieces of paper otherwise, so the government says "let this paper be worth $100" and it becomes $100. Non-fiat money have some value that is beyond declaration - e.g., gold coin has the value of gold that is made of. Since 1971, almost all world currencies are fiat money.

  • Nice, a bit of etymology helps with remembering the meaning. – George Marian Dec 5 '10 at 23:53
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There's two types of categories at play that define currency types - but I think the first is more like what you are after.

The first is there are essentially three currency types now recognised - see them described here: http://finance.mapsofworld.com/money/types/

  • Commodity Money
  • Fiat Money
  • Fiduciary Money

The second is currencies can be categorised by the type of economy from which they are generated (reserve/commodity/etc) - see them described here: http://www.forextraders.com/learn-forex-trading-course/major-currency-pairs.html

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