fiat money


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Related to fiat money: gold standard, Commodity money

fiat money

(fī`ət, fī`ăt), inconvertible money that is made legal tender by the decree, or fiat, of the government but that is not covered by a specie reserve. It is commonly understood to be of paper, although it may also consist of overvalued metal coins. The circulation of fiat money may lead to inflation, whereas money redeemable in gold or other securities is held much less likely to do so. Under conditions of proper monetary management, however, fiat paper money can be a stable currency. In fact, contemporary American money is essentially fiat money. All Federal Reserve notes and most circulating coins are money because the government says they are, not because they are backed by precious metals. Earlier, less stable examples of fiat paper money were the continentals issued by the American government during the Revolutionary War, the assignats issued during the French Revolution, and the greenbacks issued by the U.S. government during the Civil War. Most such issues were accompanied by severe price rises.

Bibliography

See W. C. Mitchell, History of the Greenbacks (1903, repr. 1960); F. Reinfeld, Story of Paper Money (rev. ed. 1960).

References in periodicals archive ?
Fiat money is an example par excellence for interventionism: namely government depriving the free market from producing money, and the concern about the ultimate consequence of collective corruption was actually implicitly embedded in Mises's anti-interventionism argument,
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Over these years, the stock of fiat money increased by 24.
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However, I claim the analogy is misapplied, particularly with respect to fiat money.
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Creating the Federal Reserve System to let bankers and not the government control the price and amount of fiat money debased the currency and is the root cause of today's financial problems.
The article on fiat money by Shannara Johnson, an editor for the International Speculator, examines the monetary roots of the French Revolution and, in the process, provides a compelling parallel to the current state of the U.
More difficult is the resolution of the Hahn (1965) problem, which, as formulated by Hellwig (1993), asks: "Why does fiat money have a positive value in exchange against goods and services even though it is not intrinsically useful?
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