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Fiat money is a government-issued currency generally not backed by a physical asset like gold or silver, but rather by the government that issued it. The euro, US dollar and British pound sterling are all examples of fiat currency.
The intrinsic value of fiat and commodity money is the difference between them. Commodity money, such as gold and silver coins, has historically had an intrinsic worth derived from their constructed elements. On the other hand, fiat money has no inherent value. It is effectively a promise from a government or central bank that the currency can be exchanged for items worth its face value.
The value of each fiat currency depends on the relationship between the supply and demand of the issuing government. If a government’s economy is well based and functioning, that currency will be worth more than that is not so stable because more trust lies in that fiat currency’s price remaining the same.
Because fiat money is not linked to actual reserves such as a national stockpile of gold or silver, it is vulnerable to inflation and, in the case of hyperinflation, to becoming worthless. The inflation rate can quadruple in a single day in some of the worst cases of hyperinflation.
Furthermore, if citizens lose faith in a country’s currency, the currency will lose its value. This is not the same as a currency backed by gold, which has inherent value due to gold’s use in jewellery and ornamentation and the manufacture of electronic equipment, computers, and aerospace vehicles.
*The content hereby presented is for informational purposes only. Nothing of this content that is available to you shall be considered as financial, legal or tax advice. Please, keep in mind that trading cryptocurrencies pose a considerable risk of loss.
*The content hereby presented is for informational purposes only. Nothing of this content that is available to you shall be considered as financial, legal or tax advice. Please, keep in mind that trading cryptocurrencies pose a considerable risk of loss.
Fiat money is a government-issued currency generally not backed by a physical asset like gold or silver, but rather by the government that issued it. The euro, US dollar and British pound sterling are all examples of fiat currency.
The intrinsic value of fiat and commodity money is the difference between them. Commodity money, such as gold and silver coins, has historically had an intrinsic worth derived from their constructed elements. On the other hand, fiat money has no inherent value. It is effectively a promise from a government or central bank that the currency can be exchanged for items worth its face value.
The value of each fiat currency depends on the relationship between the supply and demand of the issuing government. If a government’s economy is well based and functioning, that currency will be worth more than that is not so stable because more trust lies in that fiat currency’s price remaining the same.
Because fiat money is not linked to actual reserves such as a national stockpile of gold or silver, it is vulnerable to inflation and, in the case of hyperinflation, to becoming worthless. The inflation rate can quadruple in a single day in some of the worst cases of hyperinflation.
Furthermore, if citizens lose faith in a country’s currency, the currency will lose its value. This is not the same as a currency backed by gold, which has inherent value due to gold’s use in jewellery and ornamentation and the manufacture of electronic equipment, computers, and aerospace vehicles.
*The content hereby presented is for informational purposes only. Nothing of this content that is available to you shall be considered as financial, legal or tax advice. Please, keep in mind that trading cryptocurrencies pose a considerable risk of loss.
