Monetary policy

What is fiat money?

Today’s money is not backed by precious metals such as gold or silver. In other words, central banks will not exchange banknotes for their worth in gold or silver, but for other banknotes or coins of equal value. The use of fiat money is based on trust that the central bank will guarantee its value over time (price stability). That is why it is called fiat (from the Latin fiducia, which means trust).