What is Fiat Money?

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What is Fiat Money? Article by http://www.investmentcontrarians.com

Currency that is declared by a government to be a legal tender is referred to as a ‘Fiat Currency’. This type of currency owes its value mainly because of the government’s acceptance of it for paying taxes and debts. It is not backed by reserves or any physical commodity and is defined as inconvertible paper money made legal tender by a government decree. It has no intrinsic value and is based on faith, as compared to the olden days, when most currencies were based on physical commodities like gold and silver.

Today, almost all of the currency in the world today is fiat money. Example: the U.S. dollar, the Japanese Yen, the British Pound, the Euro, etc. Fiat money not being linked to physical reserves, there is great risk of it losing value or having no worth when a situation of hyper- inflation arises.