Fiat money does have backing!

It’s just not gold.

Fiat money is a form of money where the currency is not backed by any commodity. It is to be accepted as payment by fiat (order) of the government. We call this ‘legal tender‘. The US Dollar is fiat money, as is the Euro, the Yen and, in fact, most modern currencies.

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In the past, most money was backed by commodities. Usually, silver and gold. But this has not been the case for a long time. The last time western money was backed by gold and silver was between 1944 and 1971. After the second world war, the United States and the allied nations agreed on what is called the Bretton Woods system. In this system, the national banks of the participating countries tied their currencies to gold and kept physical gold in reserve. Commercial banks (but not consumers) were able to exchange bank notes for gold. However, this system came to an end in 1971 when the United States unilaterally terminated convertibility of the US dollar to gold.

Today, our money is not backed by anything. It’s just worthless paper. Right?

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