Fiat Money Explained
Fiat money is money that a government declares is legal tender. Fiat refers to the government order. It’s from the Latin, like so many of our legal words, and it means “let it be done.” The government looks at the notion that paper bills can be legal tender, and says, “let it be done.” Gold-backed money, also known as hard currency, is money that can be converted to actual gold. It used to be this way. Your dollar was as good as gold. On August 15, 1971, the United States decreed that the US dollar would not be gold backed. President Richard Nixon said, “let it be done” and American dollars became a fiat currency. Most, if not all countries, now use fiat currency. Money is not backed by any commodity. When a monetary system is based on commodity money, the money in circulation can be backed up by the commodity. Three thousand years ago, in Mesopotamia (more or less where Iraq, Kuwait, Syria, and Turkey are today), a solid system of commodity money was set up. It was based...