National currency

Fiat money is a currency established as money by government regulation or law. The term derives from the Latin ("let it become", "it will become") used in the sense of an order or decree. It was introduced as an alternative to commodity money and representative money. Commodity money is created from a good, often a precious metal such as gold or silver, which has uses other than as a medium of exchange (such a good is called a commodity). Representative money is similar to fiat money, but it also represents a claim on a commodity (that can be redeemed to a greater or lesser extent).

The first use of fiat money was recorded in China around 1000 AD. Since then, it has been used by various countries, usually concurrently with commodity currencies. Fiat money started to dominate in the 20th century. Since the decoupling of the US dollar to gold by Richard Nixon in 1971, a system of national fiat monies has been used globally, with freely floating exchange rates between the national currencies.

Fiat money has been defined variously as:

While gold- or silver-backed representative money entails the legal requirement that the bank of issue redeem it in fixed weights of gold or silver, fiat money's value is unrelated to the value of any physical quantity. A coin is fiat currency to the extent that its face value, value defined in law, is greater than its market value as metal.

In monetary economics, fiat money is an intrinsically valueless object or record that is widely accepted as a means of payment. In some micro-founded models of money, fiat money is created internally in a community making feasible trades that would not otherwise be possible, either because producers and consumers may not anonymously write IOUs, or because of physical constraints.

Circulating silver coins in the 1960s ceased to be produced containing the precious metal when the face value of the coin was below the cost of the elemental metal. The Coinage Act of 1965 eliminated silver from the circulating dimes and quarter dollars of the United States, and most other countries did the same with their coins.

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