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
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 AnswerAns
Legal Tender
Legal Tender is a form of money which cannot be refused by any citizen for settlement of any kind of transaction
Example-
If I have to pay a shopkeeper Rs500, I can give him any legal tender currency note or coin as payment
The person cannot refuse to take any type of legal money
Hence, coins and currency notes are legal tenders
However, that person can refuse to take cheque of 500 or Fixed deposit of 500, as these are not legal tenders
Fiat Money
Fiat Money 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
Coins of cheaper metals like copper, nickel, aluminum are used and currency notes are made of paper
A coin of Rs 10 may not have metal worth Rs10 and a note of Rs500 does 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 coin
Other Books
Question 1
In the following questions, select the correct answers:
Which of the following is an example of Fiat Money?
- Silver
- Gold
- Currency notes
- None of these
Ans
(c) Currency notes
Explanation
Fiat Money is a currency note or a coin which does not have intrinisic value
A coin of Rs 10 may not have metal worth Rs10 and a note of Rs500 does not have paper worth Rs 500
