Fiat Currency

Fiat money is money that is not convertible into, or backed by, a fixed quantity of a commodity such as gold.

The value of fiat money depends primarily on confidence in its issuing institutions and general acceptance for payments, rather than on the material value of the money itself.

Fiat currency includes government- or central-bank-issued banknotes and coins. Modern monetary systems also use bank deposits—and, in some systems, regulated electronic-money balances—as forms of money used for payments.

A fiat-money system can adjust the amount of money in circulation in response to economic conditions more readily than a commodity-money system constrained by the available supply of the commodity.

In the United States, the Federal Reserve Board is the issuing authority for Federal Reserve notes, and Federal Reserve Banks distribute them through depository institutions. The Federal Reserve is responsible for ensuring an adequate supply of currency and for protecting and maintaining confidence in it.