Submitted by nsscadmin on
One of our readers recently attended a lunch and learn about cryptocurrency. While there, the session organizers and a few of the attendees mentioned “fiat money” several times. Our reader did not know what the term meant and couldn’t understand what it had to do with finance. So, they came to us to find out.
The basic definition of fiat money is any money that has been declared legal tender by a government and whose value is backed by the government. Do you have any money in your pocket, wallet, or purse right now? Those coins or bills are fiat money. Canadian dollars, US dollars, British pounds and Euros are all examples of Fiat money.
Before fiat money became the standard, often things like gold or silver were used to buy goods and services. The value of gold constantly changing made this a very volatile way to do business. With the introduction of fiat money, coins and bills became legal tender and provided stability. For example, if I’m carrying around a gold nugget in my pocket, it may not be worth the same everywhere I take it. If I have a $20 bill no matter what store I take it to it’s always worth $20.
At the session our reader was attending the attendees who owned cryptocurrency stated they used an exchange to sell their crypto for fiat. In this example, they exchange some bitcoin for Canadian dollars so they could use it to purchase goods or services or invest in other ways.