Fiat currency

Fiduciary money is the type of money authorised by a government or central bank and backed by the trust we have in the people running the show. Unlike gold or crypto-currencies, it is not backed by anything tangible, but by the belief that the issuing authority has our interests at heart.

The advantage of fiat money is that a central authority regulates its supply, circulation and exchange rates, making it a tool of choice for economic and monetary policy. In addition, it is universally recognised as a medium of exchange in the country or region where it is accepted.

But because it is not based on anything tangible, fiat money can be very volatile. Its value is likely to change according to many different factors, such as inflation, political stability, supply and demand.

Despite its instability, fiat money remains very popular and is accepted almost everywhere because of its status as legal tender and the ease with which we can use it. Ultimately, it is an essential part of the global economy and the value of fiat money depends on the trust we have in the people who run the economy.