Check sibling questions

What is Fiat Money?

It is a currency note or a coin which does not have intrinsic value

They are used as legal tender only because of government regulation

Example- Currency Notes and Coins used now a days

Concept of Fiat Money - Teachoo.JPG

Are Coins Fiat Money - Teachoo.JPG

Why are currency notes and coins called Fiat money

In earlier times

Gold and Silver coins were issued

Gold and silver were precious metals which had intrinsic value

So a silver coin worth 100 Rs had an actual value of 500 rupees

 

Now

Coins of cheaper metals like copper, nickel, aluminum are used

Also currency notes are used which are made of paper

A coin of Rs 10 may not have metal worth Rs10

A currency note of Rs500 do not have paper worth Rs 500

Hence, these coins and notes are called Fiat money as they do not have intrinsic value like gold and silver coin

However they are legally accepted as legal tender because of govt regulation (govt rules)

 

NCERT Questions

Question 5

What is a ‘legal tender’?

What is ‘fiat money’?

View Answer

 

Other Books

Question 1

In the following questions, select the correct answers:

Which of the following is an example of Fiat Money?

  1. Silver
  2. Gold
  3. Currency notes
  4. None of these
View Answer

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Transcript

Concept of Fiat Money Does this Note of Rs 2000 has Paper Worth Rs 2000? No Value of Paper may be of only Rs 1 butIt has legal value of Rs 2000 Intrinsic Value =Rs 1 Legal Value = Rs1000 Both are not same So it is called Fiat Money What is Fiat Money It is a currency note or a coin which does not have intrinsic value They are used as legal tender only because of government regulation Example-Currency Notes and Coins used now a days Are Coins Fiat Money? Earlier Gold Coins Used Intrinsic Value = Rs 10 Legal Value = Rs 10 Both Intrinsic and Legal value same It is not Fiat Money Cheap Metal Coins Used Intrinsic Value = Rs 1 Legal Value = Rs 10 Both Intrinsic and Legal value are different It is called Fiat Money

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Davneet Singh

Davneet Singh is a graduate from Indian Institute of Technology, Kanpur. He has been teaching from the past 12 years. He provides courses for Maths and Science at Teachoo.