Question

What is a ‘legal tender’? What is ‘fiat money’?

Answer 1

Legal tender refers to any currency that is declared as legal by the government while fiat money is referred to as money that is not backed up by any physical commodities such as gold. They are backed by the government.

Fiat currencies provide more control to the central banks over the economy. Most currencies that are in use today are fiat money. E.g. Dollar.

Also read:

• Fiscal Deficit
• Difference Between Monetary Policy and Fiscal Policy

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