Currencies – Fiat Or Non-Fiat

Currencies

Currencies – Fiat Or Non-Fiat

Currencies are usually defined as units of currency that are generally accepted internationally for the payment of goods and services. In general, a currency is any coin or paper money that is issued by a government and that is recognized by all countries as legal tender. A country’s money supply usually depends on the strength of their currency. Currencies are traded in different markets, including the U.S. Dollar, British Pound, Japanese Yen, Euro, Swiss Franc and Canadian Dollar. In the United States, the dollar is the main international currency traded in foreign exchanges.

When speaking of Currencies, a trader usually refers to different currencies or their money values. Currencies are generally classified as either “fiat” or “counter-productive”. A fiat currency is one that is issued by a government, for example, the U.S. dollar. Such currency would always be backed by the full faith and credit of the issuing government. Although a fiat currency may increase in value, this increase does not occur until it receives an external influence, such as a tax rate hike or other economic signal from a nation’s central government. Therefore, it can be said that such a currency is nothing more than a asset that has no tangible physical presence in the world.

On the other hand, a counter-productive currency is a currency that is not backed by any force, either credit or force. For example, the U.S. dollar is often considered a fiat currency and it is the only currency that is convertible into a unit of currency that is in the possession of a nation state. On the other hand, there are numerous non- fiat currencies that are traded on the foreign exchange (forex) markets including: the euro, the Swiss franc, the Japanese yen, the Canadian dollar, the Australian dollar and the euro (which is also known as the euroUSD). In summary, currencies can be both fiat or non- fiat in nature.