Concepts
Fiat Currency
Also Known As Fiat Money
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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 Cross-Tradition Connections
Associated With
Nixon Shock, Events The Nixon Shock ended dollar-gold convertibility in 1971, moving the world onto today's fiat-money standard.
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.
Weimar is the standard cautionary case cited against unconstrained fiat money creation.
Critiqued Here
Austrian economists have long argued fiat money removes the structural check a commodity standard placed on money creation.
Sources
1. The New Palgrave Dictionary of Economics
Palgrave Macmillanfiat money
1. The New Palgrave Dictionary of Economics
Palgrave MacmillanAssociated With: Nixon Shock
1. The New Palgrave Dictionary of Economics
Palgrave MacmillanAssociated With: Weimar Republic Hyperinflation
1. The New Palgrave Dictionary of Economics
Palgrave MacmillanAssociated With School: Austrian School
2. Wikipedia
Wikimedia FoundationHistory sectionQuote, History section
Government-issued fiat money banknotes were used first during the 13th century in China.
2. Wikipedia
Wikimedia FoundationModern status sectionQuote, 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.
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).
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