A currency that has no intrinsic value but is issued on the creditworthiness of a government, but without direct connection with (i.e., convertibility to) a precious metal commodity (like gold or silver). However, it may be supported by reserves of such metals held by the issuing central bank. Fiat currency is established as a legal tender by government regulations. Legal tender is a form of money that courts of law and the broader legal system in a country legally recognize as satisfactory means of payment for any monetary debt within its jurisdiction. In other words, it is a form of money legally valid for the payment/ settlement of debts (and coutervalues) and that must be accepted for that purpose when presented by a legal or corporate person.

Principally, the value of a fiat currency is derived from the trust and confidence that people have in the government or central authority that issues it. Basically, fiat currency is money created with a government permit, and it is accepted as a medium of exchange for goods and services. Being a source of money, it would serve other functions of money: store of value and unit of account.

Moreover, fiat currency gives central banks significant control over the economy because it enables control on money supply (much money is printed and created). This is contrary to commodity money, which is directly tied to a tangible asset and the supply of which depends on discovery of precious metal by means of mining.

The value of a fiat currency reflects the economic stability and policies of the issuing government. Hence, it is a target of economic policy by certain means available to the monetary authorities.

Examples of fiat currencies include the US Dollar (USD), Euro (EUR), and Japanese Yen (JPY).

Fiat currency is also known as fiat money.