Information > Financial Terms > This page Fiat Money Inconvertible or irredeemable MONEY which a government declares shall be accepted as legal tender in payment of debts, but which is not covered by an available specie reserve. It consists either of government promises to pay the quantity of which a regulated or of undervalued metallic coins (silver, nickel, or copper) coined only on government account, but in no event is there expectation of redeeming either variety in the standard metal. Fiat money was issued in large quantities during our colonial, revolutionary, and Civil War periods, each time with the same disastrous results - driving full value coins out of circulation or subjecting them to a premium, inflating prices, and in the end causing the fiat money to become worthless, except in the case of the Civil War greenbacks, which became redeemable money by the Specie Resumption Act of 1875. Since no forms of U.S. paper money are redeemable currently into the standard money or redemption (gold), no gold coins circulate, and the coins in circulation are TOKEN MONEY, the U.S. money system is a fiat money system. It is of interest to note that transition to the de facto fiat money system of modern times was successfully accomplished without sharp discrimination against and discounting of forms of fiat money issued and in circulation, unlike the discounts that prevailed after and during the Civil War for issues of UNITED STATES NOTES until that form of paper money was provided a gold reserve, albeit in partial amount. Back to Information |