Fiat Money Definition

The definition of fiat money is currency made into legal tender. Furthermore, a governmental entity backs this tender to ensure its legitimacy.

Fiat Money Explained

Normally, fiat money is issued for a government or large grouping of countries. For example, the U.S. Federal Reserve issues dollar bills. When a person uses this, it is assumed that that particular bill has investment power because it is backed by the full faith and backing of the U.S. government. However, in Europe, the European Bank equivalent to the Federal Reserve issues euros to the local population. This process occurs all over the world for different countries and the money is only useful to a person in that particular country. If an American were to try to pay for a pack of gum in Brazil with a U.S. dollar bill, then he/she would be unsuccessful because in Brazil the dollar is of no use within the country of Brazil.

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