Fiat Currency

The terms fiat money and fiat currency are used to describe currencies which are issued by a central bank or government monetary authority and do not have material value in themselves.

Fiat money differs from commodity money (salt, rice, gold or silver, for example), which is composed of commodities which have a material value.

The term fiat money is more loosely used to describe all currencies which are not backed by gold. While a difference is often made between fiat currencies and cryptocurrencies, cryptocurrencies may qualify as fiat currencies depending on their specific attributes.

The term fiat stems from the Latin verb fieri, which means to begin to be, turn into or come to be. Fiat is the third singular present subjunctive form of the verb, and can be translated as “let it be done”. The term indicates that fiat money is created out of nothing, in an allusion to the saying fiat lux which was popularized by the Latin translation of the Bible.

Fiat money was first used in China in approximately 1000 A.D. All widely used modern currencies, including the Swiss franc, the euro and the U.S. dollar are fiat currencies.

The Swiss franc issued by the Swiss National Bank and the WIR franc issued by the WIR Bank are two examples of fiat currencies used in Switzerland.

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Expert Benjamin Manz
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