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Question
Explain the following term:
Fiat money
Explain
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Solution
Inconvertible paper money functions as money because people trust it, as it is issued under the authority (fiat) of the government. This type of money is known as fiat money since the government officially declares it as legal tender. It is circulated throughout the country based on government orders.
In today’s modern economy, the use of paper money is extensive. It is cost-effective, lightweight, and easy to carry, making it highly convenient for daily transactions. Additionally, storing paper currency is simple. One of its major advantages is that the supply of paper money can be quickly adjusted according to the economic requirements.
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