ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Fiat money is currency that has the government backing and is declared by it to be legal tender. It is not backed by a physical commodity and thus doesn’t have any intrinsic value. Its value is derived from the relationship between demand and supply rather than the value of the material that the money is made of.

Detailed explanation-2: -Fiat money is a government-issued currency that is not backed by a commodity such as gold. Fiat money gives central banks greater control over the economy because they can control how much money is printed. Most modern paper currencies, such as the U.S. dollar, are fiat currencies.

Detailed explanation-3: -’Legal tender’ is the valid money used for payment of the debt and also recognised by the law of the land. It should be accepted for the discharge of debt. The central bank has the sole right to issue banknotes as empowered by the RBI Act of 1934.

Detailed explanation-4: -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.