The word "fiat" is a Latin word that means "it shall be" or "let it be done." In order to understand what fiat means, we can express the meaning as "what we (the government) say it will be". Fiat money (as defined by this article is government-issued currency that is not backed by a physical commodity, such as gold or silver, but rather by the government that issued it.

The value of fiat money comes from the balance between its supply and the demand for it and the stability (and reliability) of the government which issues it. If the people does not demand the currency (due to lack of trust in the government), and the supply increases (due to increased monetary inflation), the value of the currency will decrease and subsequently the nominal prices of goods and services will increase.

The opposite to fiat money is money backed by a physical commodity. in this case the value of the currency will depend on the value of the physical commodity, so it would not depend on the characteristics of the issuing government

This post is intended to only raise awareness. In order to make actual financial decisions please contact your financial advisor and/or tax advisor prior to making the decision.

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