Fiat Money

What Is Fiat Money?

Fiat money (or fiat currency) is government issued currency without back by traditional money forms like gold or silver. In other words, fiat money is issued based on national credit with future tax income as reserve. Currently, almost all countries issue fiat money. The begin of fiat money was from 1973, when US dollar devalued its exchange rate to other currencies, marking the collapse of Bretton Woods system. In August 15, 1971, Nixon announced "suspension of US dollar convertablity into gold in his speech, "I have directed Secretary Connally to suspend temporarily the convertibility of the American dollar except in amounts and conditions determined to be in the interest of monetary stability and in the best interests of the United States." Current fiat money was from US national default instead of evolution of technology or gonvernance. 

The Bretton Woods system founded in 1944 was actually a monetary system of gold standard which ruled that US dollar is pegged to fix amount of gold while other currencies were pegged to US dollar. All currencies were thus gold backed.

After the collapse of Bretton Woods system, the world entered into fiat money world and the money issuance power was in central banks. Different from gold standard as value reference, there is no benchmark since then. The value of money globally is determined by its adoption, be it pricing, settlement currency, storage of value, etc. And since there is no common consensus like gold did, it led to "money colony". One country's money and monetary policies are apparently influenced by that of other countries. Currently, US dollar is de facto world currency, and Federal Reserve's policy can influence the policies of all countris and the world economy.