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Currency

currenciesforeign currencycoinage
Fiat money is a currency without intrinsic value that has been established as money, often by government regulation.
Currencies can be classified into two monetary systems: fiat money and commodity money, depending on what guarantees the value (the economy at large vs. the government's physical metal reserves).

Medium of exchange

mediums of exchangeexchange mediumfreely exchangeable for goods
Commodity money is created from a good, often a precious metal such as gold or silver, which has uses other than as a medium of exchange (such a good is called a commodity).
Most forms of money can act as mediums of exchange including commodity money, representative money and most commonly fiat money.

Monetary economics

monetary theorymonetary economymonetary
In monetary economics, fiat money is an intrinsically valueless object or record that is widely accepted as a means of payment.
It considers how money, for example fiat currency, can gain acceptance purely because of its convenience as a public good.

Representative money

representativenegotiatedcommodity backed
It was introduced as an alternative to commodity money and representative money.
However, unlike some forms of fiat money (which may not have anything of value backing it), to be a genuine representative money, there must always be something valuable supporting the face value represented.

Gold standard

goldgold exchange standardbacked by gold
Commodity money is created from a good, often a precious metal such as gold or silver, which has uses other than as a medium of exchange (such a good is called a commodity).
It was a fiat money (not convertible on demand at a fixed rate into specie).

Commodity money

speciecommoditycommodity standard
It was introduced as an alternative to commodity money and representative money. Since then, huge increases in the supply of paper money have taken place in a number of countries, producing hyperinflations – episodes of extreme inflation rates much higher than those observed in earlier periods of commodity money.
The role of a mint and of coin differs between commodity money and fiat money.

Monetary system

monetary standardcurrency systemsbacked
Fiat money is a currency without intrinsic value that has been established as money, often by government regulation.
The alternative to a commodity money system is fiat money which is defined by a central bank and government law as legal tender even if it has no intrinsic value.

Hyperinflation

hyper-inflationinflationgalloping inflation
The costs of the war with the British led to rapid inflation in New France. Since then, huge increases in the supply of paper money have taken place in a number of countries, producing hyperinflations – episodes of extreme inflation rates much higher than those observed in earlier periods of commodity money. Economists generally believe that high rates of inflation and hyperinflation are caused by an excessive growth of the money supply.
Most hyperinflations in history, with some exceptions, such as the French hyperinflation of 1789-1796, occurred after the use of fiat currency became widespread in the late 19th century.

Chao (currency)

ChaocashChāo
The founder of the Yuan Dynasty, Kublai Khan, issued paper money known as Chao in his reign.
The chao banknotes were initially backed by silver but as the demand for them grew they became a fiat currency and weren't backed by gold or silver.

United States Note

greenbacksgreenbackLegal Tender
During the American Civil War, the Federal Government issued United States Notes, a form of paper fiat currency popularly known as 'greenbacks'.
Often termed Legal Tender Notes, they were named United States Notes by the First Legal Tender Act, which authorized them as a form of fiat currency.

Gresham's law

good moneyinstability in the ratiobad money
In an application of Gresham’s Law – bad money drives out good – people hoarded gold and silver, and used paper money instead.
Today all circulating coins are made from base metals, known as fiat money.

Early American currency

continental currencyContinentalContinentals
Examples include the “Continental” issued by the U.S. Congress before the Constitution; paper versus gold ducats in Napoleonic era Vienna, where paper often traded at 100:1 against gold; the South Sea Bubble, which produced bank notes not backed by sufficient reserves; and the Mississippi Company scheme of John Law.
Bills of credit were usually fiat money: they could not be exchanged for a fixed amount of gold or silver coins upon demand.

Kublai Khan

KublaiKhubilai KhanEmperor Shizu
The founder of the Yuan Dynasty, Kublai Khan, issued paper money known as Chao in his reign.
Kublai Khan is considered to be the first fiat money maker.

Greenback Party

GreenbackGreenbackerG
During the 1870s, withdrawal of the notes from circulation was opposed by the United States Greenback Party.
A dual currency system emerged in which this fiat money circulated side by side with ostensibly gold-backed currency and gold coin, with the value of the former bearing a discount in trade.

Legal tender

demonetizationdemonetizedtender
Any money declared by a government to be legal tender.
This resulted in a situation in which the greenback "Legal Tender" notes of 1862 were fiat, and so gold and silver were held and paper circulated at a discount because of Gresham's Law.

United States dollar

$US$USD
This was a series of economic measures taken by United States President Richard Nixon in 1971, including unilaterally canceling the direct convertibility of the United States dollar to gold.
Since the suspension in 1971 of convertibility of paper U.S. currency into any precious metal, the U.S. dollar is, de facto, fiat money.

Bretton Woods system

Bretton WoodsBretton Woods AgreementBretton Woods institutions
From 1944 to 1971, the Bretton Woods agreement fixed the value of 35 United States dollars to one troy ounce of gold.
On 15 August 1971, the United States unilaterally terminated convertibility of the US dollar to gold, effectively bringing the Bretton Woods system to an end and rendering the dollar a fiat currency.

Central bank

central bankscentral bankingcentral banking system
A central bank introduces new money into the economy by purchasing financial assets or lending money to financial institutions. Generally, these monetary authorities are the central banks that control monetary policy through the setting of interest rates, through open market operations, and through the setting of banking reserve requirements.
At the most basic level, monetary policy involves establishing what form of currency the country may have, whether a fiat currency, gold-backed currency (disallowed for countries in the International Monetary Fund), currency board or a currency union.

Nixon shock

dollar hegemonyclosed the gold window15 August 1971
Since the decoupling of the US dollar from gold by Richard Nixon in 1971, a system of national fiat currencies has been used globally.
By 1973, the Bretton Woods system was replaced de facto by the current regime based on freely floating fiat currencies.

Banknote

paper moneybanknotespaper currency
Since then, huge increases in the supply of paper money have taken place in a number of countries, producing hyperinflations – episodes of extreme inflation rates much higher than those observed in earlier periods of commodity money.
Today, most national currencies have no backing in precious metals or commodities and have value only by fiat.

Ming dynasty

MingMing ChinaMing Empire
Fiat money originated in 11th century China, and its use became widespread during the Yuan and Ming dynasties.

Deflation

deflationarydeflationary spiralmoney supply contracted
Low (as opposed to zero or negative) inflation reduces the severity of economic recessions by enabling the labor market to adjust more quickly in a downturn, and reduces the risk that a liquidity trap prevents monetary policy from stabilizing the economy.
Most nations abandoned the gold standard in the 1930s so that there is less reason to expect deflation, aside from the collapse of speculative asset classes, under a fiat monetary system with low productivity growth.

Money supply

supply of moneyM2M1
Economists generally believe that high rates of inflation and hyperinflation are caused by an excessive growth of the money supply.
It holds that money creation in a free-floating fiat currency regime such as the U.S. will not lead to significant inflation unless the economy is approaching full employment and full capacity.

Reserve requirement

reserve requirementsreserve ratioreserve requirement ratio
Generally, these monetary authorities are the central banks that control monetary policy through the setting of interest rates, through open market operations, and through the setting of banking reserve requirements.
Historically a central bank might once have run out of reserves to lend and so have had to suspend redemptions, but this can no longer happen to modern central banks because of the end of the gold standard worldwide, which means that all nations use a fiat currency.

Money creation

credit creationprinting moneycreate money
Money creation
The central bank's activities directly affect interest rates, through controlling the base rate, and indirectly affect stock prices, the economy's wealth, and the national currency's exchange rate.