ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Fiat money is money that does not have intrinsic value and does not represent an asset in a vault somewhere. Its value comes from being declared “legal tender"-an acceptable form of payment-by the government of the issuing country.

Detailed explanation-2: -Fiat money serves only as a medium of exchange, because its use as such is authorized by the government; it has no intrinsic value.

Detailed explanation-3: -Historically, commodity money has an intrinsic value that is derived from the materials it is made of, such as gold and silver coins. Fiat money by contrast, has no intrinsic value – it is essentially a promise from a government or central bank that the currency is capable of being exchanged for its value in goods.

Detailed explanation-4: -Fiat currency is the kind of money which don’t have any intrinsic value and it can’t convert into a valuable resource. The value of fiat money is determined by government order which makes it a legal instrument for all transaction purposes.

Detailed explanation-5: -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.