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FIAT MONEY:

   Fiat money is a cureency issued by the government that can be backend by any physical commodities like silver or gold. The worth of fiat money can be judged by its relation between ‘supply and demand’ and the ‘stability of government issuing the currency’ than the value of commodity backing it. And in the modern society, the most popular paper currencies are fiat currencies. For example, U. S. Dollars and Euros. The danger of fiat currencies is that the government can print it too much which can be resulting in “hyperinflation”.

Meaning of FIAT MONEY:

     The word “fiat” derives from latin word which can be often translated as ‘it shall be’ or ‘ let it be done’. Therefore, Fiat money have only value because the government maimtains its own worth. Fiat currency is inconvertible and thus it cannot be redeemed simply because there is no underlying commodity backing it.

     Fiat money can not be related to any kind of  physical reserves, such as national stockpile of silver or gold, and it risks the  losing value due to inflation or hyperinflation. And there are also some worst cases of hyperinflation, for example immediately after World War II, the rate of inflation is doubled.

     Additionally, if people lose their  faith in nation’s currency, the money will no longer grasp its value. 

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Nirmala

Nirmala