What is fiat currency?

2 mn

Fiat currency refers to currencies that have paper notes that are not pegged to the price of a commodity such as gold or silver.  Fiat currencies are backed and regulated by governments, such as the UK British pound or the Euro. 

The public's faith in a country's government or central bank is largely responsible for the value of its fiat money. Until the gold standard was abolished in the 1930s, fiat currencies were backed by gold. Their value now depends on their wide use as a means of exchange.

Fiat currencies give governments and central banks the ability to print money for their spending, which can be used in emergencies or when there is a need for increased debt.

However printing money leads to high inflation and erodes the currency's value, ultimately impacting the population using this currency creating an increase in their cost of living and devaluing their savings.

Cryptocurrencies on the other hand might still be controversial because they are the first type of money that is not controlled by any central authority. Cryptocurrencies' decentralised nature enables their holders to avoid having their fixed supply changed by a third party. This characteristic is what tends to appeal more to many Bitcoin supporters compared with fiat money