ELI5: fiat money

What is fiat money?

Fiat money is the paper money and coins you use every day, like dollars or euros [1][2]. It's called "fiat" because the government decided it's valuable just by saying so—kind of like how your teacher decides gold stars are worth something even though they're just stickers [3].

Why does it have value?

Fiat money doesn't have gold or silver backing it up like old money did [5]. Instead, it has value because everyone trusts the government and agrees to use it [3][4]. It's like a playground game where everyone agrees rocks are money—rocks only work as money because everyone believes in the rule.

What can you do with it?

You can trade fiat money for things you want, like toys, food, or video games [4]. Stores accept it because they know they can trade it for other things they need later. This makes buying and selling much easier than trading one toy for another [2].

How does it stay valuable?

The government and its central bank make sure fiat money stays valuable by controlling how much they print [3]. If they printed too much, it would be like giving everyone infinite gold stars—suddenly gold stars wouldn't be special anymore, and they'd be worth less.