Fiat money derives its value primarily from which of the following?
(a) Its inherent material worth
(b) The authority of the central government that issues it
(c) The backing of a commodity like precious metals
(d) Its acceptance in international trade

Question

Fiat money derives its value primarily from which of the following?
(a) Its inherent material worth
(b) The authority of the central government that issues it
(c) The backing of a commodity like precious metals
(d) Its acceptance in international trade

ONLiNE UPSC · Accepted Answer

Fiat money is a crucial component of modern economies, serving as the primary medium of exchange in most countries around the world. Fiat money gets its value from the government decree, which makes it legal tender. The government enforces its acceptance, and people trust it for transactions. Governments issue fiat money and regulate its supply through central banks. Central banks have the authority to control how much money is in circulation, influencing economic factors such as interest rates and inflation.

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