Money that has value because a government declares it legal tender, rather than because it is backed by or convertible into a commodity such as gold. Fiat money has been the norm worldwide since the United States suspended dollar-gold convertibility in 1971; its critics, notably in the Austrian tradition, argue it removes any structural check on the quantity of money a government can create, while its defenders argue it allows a central bank to respond flexibly to recessions and financial crises.
Facts
Origin YearChina had circulated paper money since the 7th century, but that early paper money was still nominally convertible; fully government-fiat banknotes with no claim to convertibility are dated by this source to the 13th century, the era of the Yuan dynasty's Kublai Khan. No single economist proposed fiat currency as a concept, so proposed-by is left unwritten. SignificanceFiat money has been the universal standard for major government currencies since the Bretton Woods system ended in 1971 and the 1976 Jamaica Accords formally ratified the change, so essentially all global commerce and monetary policy today runs on money with no commodity backing. 2 Connections
Associated With
Gresham's Law, Concepts Gresham's Law describes overvalued currency driving sound currency out of circulation, a dynamic relevant to any monetary system where currencies circulate at a fixed nominal rate, including modern fiat regimes.
Source Wikipedia
Source Gulf Cooperation Council (Wikipedia)
Nixon Shock, Events The Nixon Shock ended dollar-gold convertibility in 1971, moving the world onto today's fiat-money standard.
Source The New Palgrave Dictionary of Economics
Jiaozi, nationalized as a government monopoly issue from 1023, is numismatically regarded as the first paper money in history, an early instance of state-issued currency not fully backed by precious metal.
Source Wikipedia
Weimar is the standard cautionary case cited against unconstrained fiat money creation.
Source The New Palgrave Dictionary of Economics
Critiqued Here
Austrian economists have long argued fiat money removes the structural check a commodity standard placed on money creation.
Source The New Palgrave Dictionary of Economics
Sources
1. The New Palgrave Dictionary of Economics
Palgrave Macmillan- fiat money
- Associated With: Nixon Shock
- Associated With: Weimar Republic Hyperinflation
- Associated With School: Austrian School
2. Wikipedia
Wikimedia FoundationAssociated With: Song Dynasty Paper Money (Jiaozi), Jiaozi (currency), lead sectionQuote, Associated With: Song Dynasty Paper Money (Jiaozi), Jiaozi (currency), lead section
Numismatists regard it as the first paper money in history, a development of the Chinese Song Dynasty (960-1279 CE).
Encyclopaedia Britannica
Fiat money (Wikipedia)
History section
Government-issued fiat money banknotes were used first during the 13th century in China.
Modern status section
Since the end of the Bretton Woods system in 1976 by the Jamaica Accords, all the major government currencies in the world are fiat money.
View the SourceGulf Cooperation Council (Wikipedia)
WikipediaAssociated With: Gulf Cooperation Council, Wikipedia GCC article, Objectives subsectionQuote, Associated With: Gulf Cooperation Council, Wikipedia GCC article, Objectives subsection
The name Khaleeji has been proposed as a name for this currency. If realized, the GCC monetary union would be the second-largest supranational monetary union in the world, measured by the GDP of the common-currency area, following the Eurozone.
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