ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -When applied to paper money, fiat currency refers to the scary notion that our dollar has value only because the government says it does. The United States Dollar (USD), the Euro and most other major currencies are fiat monies.

Detailed explanation-2: -The U.S. dollar is considered to be both fiat money and legal tender, accepted for private and public debts. Legal tender is basically any currency that a government declares to be legal. Many governments issue a fiat currency, then make it legal tender by setting it as the standard for debt repayment.

Detailed explanation-3: -Fiat money is backed by a country’s government instead of a physical commodity or financial instrument. This means most coin and paper currencies that are used throughout the world are fiat money. This includes the U.S. dollar, the British pound, the Indian rupee, and the euro.

Detailed explanation-4: -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. For example: A 10 Rupee note in India issued by RBI & is signed by the Governer of RBI & is guaranteed by RBI.

Detailed explanation-5: -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.