Glossary · Money and central banks
Fiat money
Fiat money is money that has value because a government declares it legal tender and people trust it, not because it is made of or backed by gold.
Also called: fiat currency, paper money, legal tender
Sep 2026: about $7,011 per person
US consumer prices, Oct 2026
In plain words
A $100 bill costs a few cents to print. A gold coin is worth its gold. So why will a shop give you $100 of shopping for that piece of paper? Because the law says dollars must be accepted to settle debts and pay taxes, and because everyone trusts that the next person will take them too. Money like that is fiat money, from the Latin for “let it be done”.
Every major currency today is fiat money: the dollar, the euro, the yen, the pound. None is backed by gold. Each is backed by trust in the central bank that issues it and by the economy whose taxes and goods it pays for.
The big advantage: the amount of money can grow with the economy and be adjusted in a crisis. The big risk: nothing stops a reckless government from creating too much of it, which is how hyperinflations happen.
Example
What a fiat dollar lost, and why that is not the whole story
- Something that cost $100 in January 1970, the year before the dollar’s last link to gold was cut, costs about $890 today (Oct 2026).
- Put the other way, $100 kept in a drawer since 1970 buys what $11.23 bought then.
- Invested in Treasury bills, bonds or stocks over the same years, the money would have kept up with prices or done better.
Fiat money is made to be spent and lent, not hoarded: kept in a drawer it slowly loses value, by design about 2% a year.
One level deeper
China printed the first paper money about a thousand years ago, and later dynasties issued notes with no metal behind them, at times with ruinous inflation. In Europe paper money long remained a claim on gold or silver. The US dollar became fiat money in steps: Americans could no longer swap notes for gold after 1933, foreign governments lost that right in August 1971, and since then no major currency has been tied to gold.
What gives it value? The law (it is legal tender, and taxes must be paid in it), scarcity managed by an independent central bank, and the size and stability of the economy behind it. When one of these fails, as when a government prints to pay its bills, people flee into dollars, gold or goods, and the currency collapses.
Cryptocurrencies such as bitcoin were designed as an alternative, with no central bank and a fixed limit on supply. Critics point out that no tax base or legal tender status stands behind them; fans say that is the point.
US paper money and coins in circulation since 1959
Even in the age of cards and phones, the amount of cash keeps growing: from $28.5B in 1959 to $2.4T in Sep 2026. Federal Reserve researchers estimate that a large share of US banknotes, above all $100 bills, is held abroad.
The numbers behind the chart
| Date | Currency in circulation |
|---|---|
| Jan 1959 | $28.5B |
| Dec 1960 | $28.7B |
| Dec 1970 | $48.6B |
| Dec 1980 | $115B |
| Dec 1990 | $246B |
| Dec 2000 | $531B |
| Dec 2010 | $919B |
| Dec 2020 | $1.97T |
| Dec 2022 | $2.21T |
| Dec 2023 | $2.25T |
| Dec 2024 | $2.27T |
| Dec 2025 | $2.34T |
| Sep 2026 | $2.4T |
Why it matters
It is the money you use every day, and its value rests on the credibility of one institution, the central bank.
Under fiat money mild inflation is normal: prices drift up every year, instead of rising and falling as they did under gold.
It lets central banks act in a crisis, cutting rates and creating money, which a gold standard would forbid.
A common mistake
Myth: Fiat money is backed by nothing.
In fact: It is not backed by a metal, but it is backed by something: the law that makes it legal tender, the taxes that must be paid in it, and the goods and services of the economy that uses it. A currency is only as good as those.
Questions people ask
Is the US dollar fiat money?
Yes. Since 1971 the dollar cannot be exchanged for gold at a fixed price, by anyone. Its value depends on the Federal Reserve keeping inflation low and on the US economy.
What is the opposite of fiat money?
Commodity money, such as gold or silver coins worth their metal, and representative money, paper notes you can swap for a fixed amount of metal, as under the gold standard.
Why did countries switch to fiat money?
Under gold, money could not grow faster than the gold stock, so countries could not respond to crises or to growing economies; in the Great Depression, countries that left gold early recovered sooner. By 1971 there were far more dollars abroad than US gold to back them, and the last link was cut.
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About the numbers
- The numbers on this page are recalculated from the data every night; the sources are listed at the end of the page.
- Consumer price index, all items (CPI-U): U.S. Bureau of Labor Statistics, Consumer Price Index, series CPIAUCSL; retrieved from FRED, Federal Reserve Bank of St. Louis.
- M2 money stock: Board of Governors of the Federal Reserve System, H.6 Money Stock Measures, series M2SL; retrieved from FRED, Federal Reserve Bank of St. Louis.
- Currency component of M1 and M2: Board of Governors of the Federal Reserve System, H.6 Money Stock Measures, series CURRSL; retrieved from FRED, Federal Reserve Bank of St. Louis.
- US population (midperiod, BEA): U.S. Bureau of Economic Analysis, National Income and Product Accounts, Table 2.1, series B230RC0A052NBEA; retrieved from FRED, Federal Reserve Bank of St. Louis.
- This page explains a term. It is not investment advice.