What is Fiat Currency?

Fiat currency is what most of us know and use every day. It is a form of money issued by a Government that is not backed by any physical commodity.

In the past, Governments issued money, say Dollars, that was backed by a commodity such as silver or gold. So, the number or amount of Dollars in circulation could not exceed the value of the gold that those Governments held in storage sites such as Fort Knox in Kentucky, USA. In theory, you could have redeemed your Dollars for an equivalent amount of Gold.

These days, most paper currencies are fiat currencies and do not have any intrinsic value other than to be used as a way of paying for things. Your Dollar Bills, Pound Notes, Euros, Yen or Yuan are simply a way of storing value and facilitating exchange.

Why did Governments change from commodity-backed currency to fiat currency? So they would have much greater control over the money supply in their country and to give them power over the supply of credit and interest rates.

Fiat Currency and Bitcoin

Fiat is a Latin word that can best be translated by the phrase, “It Shall Be”, and you can easily see how it relates to a Government stating the value of “their” money. It only takes one small step of the imagination to understand why Governments are thus afraid of a Cryptocurrencies like Bitcoin over which they do not exert total control. Instead, Governments are seeking to regulate and control the exchange of their own fiat currencies into Bitcoin.