FIAT MONEY VS TENDER MONEY
1. FIAT MONEY
Fiat money is not backed by physical commodities, such as gold. Instead, it is government-backed. Most paper currencies today are fiat currencies. Fiat money value is based on the relationship between supply and demand. Fiat holds value because of people’s faith in that nation’s currency.
The benefit of fiat money is that it gives central banks greater control over the economy, as they can control how much money is printed
Inflation may occur when a government creates too much of a fiat currency, and the money supply increases too rapidly as a result. Governments printing too much money can create hyperinflation.
2.LEGAL TENDER
Legal tender is any form of payment recognized by a government, used to pay debts or financial obligations, such as tax payments. National currencies, such as the U.S. dollar, are legal tender.
National currencies, such as the U.S. dollar, are legal tender. In the U.S., the Treasury is authorized to create and issue dollars to the public.
Federal Reserve notes and coins are recognized legal tender in the U.S.
Laws ensure nothing other than official legal tender gains enough traction to be used as money in the economy
Notably, checks and credit cards aren’t legal tender—rather, they are money substitutes
The U.S. dollar is both fiat money and legal tender. In 1933, the U.S. federal government stopped allowing citizens to exchange currency for government gold.
Dollars are now backed by the U.S. government itself.
As legal tender, the dollar is accepted for both public and private debts.
The dollar's value fluctuates with economic conditions and the federal government's management of interest rates.
|
Cryptocurrencies are not considered money in most parts of the world, as it does not have legal tender.
El Salvador became the first country in the world to accept bitcoin as legal tender in June 2021.
|
Source:investopedia
