FIAT MONEY

Fiat money is currency established by a government order. It has no intrinsic value. Let’s think of this in terms of a gold coin and a paper banknote. The gold coin has intrinsic value because of the precious metal it is made of. Paper money doesn’t have any intrinsic value, because the value of paper needed to print a single banknote is negligible. Fiat money has value only because a government declares that it does, or because parties engaging in an exchange agree on its value. The main problem with fiat money is that a government can lose the ability to maintain its value, which can lead to hyperinflation.