Fiat money is a government-issued currency that has no intrinsic value and is not backed by any physical commodity like gold or silver. Its value comes entirely from the government's decree and the public's trust in the issuing authority.
Key features of fiat money include: No intrinsic value — the material (paper or metal) has no significant value on its own. Legal tender — the government declares it must be accepted for debts, taxes, and transactions. Central bank control — central banks (like Bangladesh Bank) control the money supply to manage inflation and economic stability. Trust-based — its value depends on public confidence in the government's economic stability and ability to collect taxes.
After the gold standard was abolished in 1971, most countries adopted fiat money systems. The US Dollar, Euro, Japanese Yen, and Bangladeshi Taka are all fiat currencies.
Fiat money gives governments enormous flexibility in monetary policy because they can increase or decrease the money supply as needed. However, if a government prints too much money or manages the economy poorly, it can lead to inflation or even hyperinflation, which severely erodes purchasing power. Zimbabwe in the 2000s and Venezuela in recent years are examples of what happens when fiat money management goes wrong.