Fiat Money

Money that has value primarily because a government demands it in payment of taxes, and that government has credible enforcement of its demand. The term is used to distinguish such money from representative money, which is pegged or fixed to a quantity or mass of precious metal. For example, a coin may be considered fiat currency if its face value (the value it has in payment of taxes) is higher than its market value as metal. Whilst representative money is often associated with a legal requirement that the bank of issue pay in fixed weights of a given precious metal, fiat money's value is fixed only to its value in transactions controlled by government authority, such as taxation.