Fiat Currency

Fiat currency is money that has value because a government says it does, not because it’s made of something valuable like gold or silver. Unlike commodity money—such as gold coins, which are useful even outside of being money—fiat currency relies entirely on trust in the issuing authority, usually a central bank or government, to manage its supply and stability. Most countries today use fiat money, like the US dollar or euro.

In contrast, commodity money gets its worth from the material it’s made of, such as precious metals or other goods that people find inherently valuable. While these can be used directly, they’re usually less convenient to carry, divide, or keep safe.

There’s also representative money, which itself isn’t valuable but can be traded in for a commodity that is—think of old paper notes that could once be redeemed for a set amount of gold or silver.