Fiat money is government-issued currency, such as the U.S. dollar, euro, or Japanese yen - that isn’t backed by a physical commodity like gold.

Its value comes from trust in the issuing government and the fact that it’s declared legal tender for paying debts and taxes.

Most of the world’s currencies are fiat. This system gives governments and central banks flexibility to manage money supply, interest rates, and inflation, but it also carries risks - such as loss of value through inflation or hyperinflation if mismanaged.