A currency that's created and controlled by a government. In other words, it exists by government “fiat.” Using the dollar as an example, the U.S. Federal Reserve creates new dollars simply by printing them or injecting electronic “reserves” into the banking system. The supply of dollars thus depends on the decisions of our elected officials and their appointed administrators like the governors of the Fed. An example of a non-fiat currency would be the gold and silver coins that used to circulate in much of the world. There was only so much of each metal, and the supply only increased when some enterprising miner discovered and dug up more. Governments were unable to create this kind of money out of thin air. Like the dollar, today’s euro, Japanese yen, and British pound are all fiat currencies. And—here’s the crucial point—every single fiat currency that has existed prior to the current batch was eventually destroyed by its government.
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