We can think of fiat money as a money that is commensurate with the value of the state, instead of a coin that is literally printed in a literal sense. This money is completely legal. In other words, the state creates the value of this money. If the state that created the nominal money is strong, money is also strong. If the state is weak, the value of nominal money is also low.
Many countries in the world use this currency in purchasing services and products instead of physical money. We can even say that in recent years, it is a system that shows the value of the national currency of the state for fiat money.
How Did Fiat Money Come About?
Paper money that a state can print determines gold. In other words, the more gold the state has, the more the paper can release the money. Putting more than gold on the market also causes the balance in the economy to deteriorate. We can call this a monetary system based on commodity. So, as we have seen, money and gold are considered together in the classical state system.
So, how is the fiat money different from this system? In fiat money systems, states are more effective and controlled on money systems. The gold system seems more stable than those who defend the old gold foundation. According to those who support fiat money, gold is the opposite of an unstable system.
Advantages of Fiat Money
The cost of fiat money is less than the old system. When economic crises occur, it gives the state more opportunity to act than the other system. This currency is inexpensive since it does not require storage and tracking. However, since these coins can be created from scratch, can cause high inflation.