Fiat

Government-issued currency not backed by a physical commodity. The default form of money since 1971.

Fiat currency is money that has value because a government decrees it does — not because it represents a claim on gold, silver, or any other commodity. Every modern national currency (the pound, the dollar, the euro, the yen) is fiat. This was not always the case — until 1971, the US dollar was backed by gold, with other currencies pegged to it.

The defining property of fiat money is that its supply is decided by a central authority. Central banks can print more, withdraw it, or set interest rates that influence its value. This flexibility is the source of fiat's usefulness — economies can be stimulated in recessions — but also the source of inflation, which is the long-term erosion of purchasing power.

Bitcoin sits in opposition. Its supply is fixed at 21 million coins, with the issuance schedule baked into the protocol. No central authority can issue more. That is the entire premise — sound money in an age of soft money.

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Course topic

Inflation & money

Why prices keep rising and what to do about it. The history of money, the mechanics of inflation, and how Bitcoin breaks the cycle.

Related terms

Glossary

Inflation

The loss of purchasing power over time. Today's pound buys less than yesterday's.

Glossary

CBDC

Central Bank Digital Currency — a digital version of fiat money issued by a central bank, with programmable rules.

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