Fiat money refers to government-issued currency. The term “fiat” comes from Latin and means “let it be done” – money that is declared legal tender by official decree.
In the past, many currencies were backed by gold. That is, for every unit of currency issued, there had to be a corresponding amount of gold stored in national reserves. This system – known as the gold standard – was gradually abandoned in the 20th century. Today, no national currency is backed by gold.
This means that modern money has no intrinsic value. A €100 note is worth €100 not because of the paper it’s printed on, but because we all agree to treat it as such – and because a government stands behind it.
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