ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -What Is Fiat Money? Fiat money is a form of currency that is declared legal tender. This includes money in circulation such as paper money or coins. Fiat money is backed by a country’s government instead of a physical commodity or financial instrument.

Detailed explanation-2: -Legal tender refers to any currency that is declared as legal by the government while fiat money is referred to as money that is not backed up by any physical commodities such as gold. They are backed by the government. Fiat currencies provide more control to the central banks over the economy.

Detailed explanation-3: -Fiat money: Fiat money refers to the money which is backed with the order of the government under law. It must be accepted for all debts.

Detailed explanation-4: -Examples of fiat money include coins and bills ( paper currency). Fiat money gets its value from a government order (i.e. fiat). That means, the government declares fiat money to be legal tender, which requires all people and firms within the country to accept it as a means of payment.