Fiat Money
Government-issued currency not backed by a physical commodity like gold.
It works based on trust.
First heard from the The Bitcoin Standard.
Government is easy money.
Stock flow ratio.
How to make it work
For fiat money to succeed, governments needed to enforce its use and establish trust:
- Legal tender laws: Governments passed laws requiring the use of fiat money for debts and taxes
- Backing by authority: The stateās ability to enforce contracts, collect taxes, and maintain stability ensured trust in the currency
- Monopoly on issuance: Governments centralized the issuance of money, ensuring no competing currencies diluted trust