Answer to Question #111356 in Macroeconomics for Selwyn Roberts

Question

What is fiat money? Why is fiat money important in The Bahamas today?

Answer 1

Fiat money is a national currency that is not tagged to the price of a commodity such as silver or gold but it is backed by the government as a legal tender.

Importance in Bahamas – Fiat money plays a vital role in stabilization of economy. Its value, unlike the value of commodities, is stable. A central bank can use it to control an economy by regulating how much of fiat money it prints.