Fiat currency is government-issued money that holds value because a central authority, like a government or central bank, declares it as legal tender. Unlike Commodities such as gold or silver, fiat has no intrinsic value and is not backed by physical assets. Its value is based on trust in the issuing government and economic stability. Most modern economies, including the US dollar, Euro, and Indian rupee, use fiat currencies. They allow governments more flexibility in monetary policy, such as inflation control and interest rate adjustments. However, overreliance can lead to inflation or currency devaluation in unstable economies.
Example:
An investor deposits U.S. dollars into a brokerage account to purchase securities.
