Crypto glossary
Fiat money
A fiat currency isn't backed by anything you can touch — it exists because a government declares it money, and because all of us keep treating it as money.
Fiat is Latin for “let it be done”. A fiat currency has no commodity behind it: you cannot walk into a central bank and swap your banknote for gold.
That has been true of essentially every major currency since 15 August 1971, when President Nixon ended the convertibility of the US dollar into gold. He described the move as temporary. It never came back.
People often hear this and conclude that fiat money is backed by nothing. It is more accurate to say it is backed by an agreement — a very large and very organised one. Laws make it legal tender, taxes must be paid in it, and hundreds of millions of people keep accepting it every day without thinking about it.
That agreement is remarkably durable: it survives wars, recessions and bad governments. But it is still an agreement, which is exactly why hyperinflations are possible.