In case of fiat money, price of foreign exchange comes from the federal authorities or regulation. Money may or may not have intrinsic value. For instance, the use of gold, grain, and even furs and other animal products as commodity money preceded the current fiat system. Well, the US dollar, the euro, the Chinese renminbi, the Japanese yen and the Swiss franc are all fiat monies. #2: Gold was replaced by fiat money for political rather than for economic reasons. Most modern economies are based on a fiat money system. Fiat money is simply paper that has been made legal tender by government decree. The most important feature of fiat money is the stability of its value, unlike commodity-based money like gold, copper, and silver. The use of fiat money became popular in the 20 th century as governments and banks moved in to protect their economies from the frequent busts of the business cycle. Money may or may not have intrinsic value. In fact, the opposite is true. Fiat money is the opposite of commodity money, which is money that’s based on a valuable commodity, a method of valuation that was used in the past. Fiat money serves only as a medium of exchange, because its use as such is authorized by the government; it has no intrinsic value. Fiat money in extremis is accepted by nobody. https://www.khanacademy.org/.../v/commodity-money-vs-fiat-money By definition, its intrinsic value is significantly lower than its face value. Fiat money is a foreign exchange that is declared as approved tender or method of economic transaction by the federal authorities or regulation. Commodity money has intrinsic value because it has other uses besides being a medium of exchange. Fiat money, in a broad sense, all kinds of money that are made legal tender by a government decree or fiat. At times, the commodity itself actually was used as money. Fiat money serves only as a medium of exchange, because its use as such is authorized by the government; it has no intrinsic value. Examples of fiat money include coins and bills. The benefit of fiat money is that it gives central banks greater control over the economy, but governments can print too much money and create hyperinflation. The Fed reports several different measures of money, including M1 and M2. The Fed reports several different measures of money, including M1 and M2. What, you may ask, is fiat money then? Unlike commodity money, fiat money is not backed by any physical commodity. Hence, the value of fiat money is derived from the relationship between supply and demand. Commodity money has intrinsic value because it has other uses besides being a medium of exchange. The term is, however, usually reserved for legal-tender paper money or coins that have face values far exceeding their commodity values and are not redeemable in gold or silver . 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