Fiat currency, also called fiat money, is legal tender whose value is backed by the government that issued it. This differs from money that is backed by a physical asset that sets the standard for its value, such as gold. The main advantage of the gold standard compared to fiat currency is that it is much more resistant to inflation. The limited supply of gold and the government's inability to create more gold as it pleases help to avoid rapid changes in the currency's valuation over relatively short periods of time.
Since the physical quantity of gold acts as a limit to that emission, a society can follow a simple rule to avoid the evils of inflation. While fiat currency is the norm and has been for some time, it was the gold standard that once governed the economy, playing a role in everything from international trade to the value of the currency. At the same time, the desire to return to the idyllic years of the gold standard remained strong among nations. Both the gold standard and fiat money have advantages and disadvantages mainly related to the limited supply of gold and the unlimited supply of printed money.
Since it could not always depend on additional land supplies, the supply of gold expanded only through deflation, trade, looting, or degradation. According to this etymology, the value of fiat currencies is ultimately based on the fact that they are defined as legal tender by government decree. The Gold Pool collapsed in 1968, as member countries were reluctant to cooperate fully to maintain the market price in the U.S. UU.
The main advantage of fiat money is, in fact, linked to the fact that it is not a scarce resource like gold or silver. S and several European countries stopped selling gold on the London market, allowing the market to freely determine the price of gold. The global financial system continued to operate on a gold standard, albeit in a more indirect way. However, history shows that strict compliance with the gold standard can cause economic instability and political unrest, as we saw in the years before and after the First World War.
The gold standard is a monetary system in which a country's currency or paper currency has a value directly linked to gold. In 1900, the Gold Standard Act saw the fruits of a true gold standard, establishing gold as the only metal used to exchange paper currency in the United States. The dollar, and by extension, the global financial system that it effectively supported, entered the era of fiat money.