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Fiat money is government-issued currency that is not backed by a physical commodity, such as gold or silver, but rather by the government that issued it. The value of fiat money is derived from the relationship between supply and demand and the stability of the issuing government, rather than the worth of a commodity backing it as is the case for commodity money. Most modern paper currencies are fiat currencies, including the U.

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In other words, money acts as an intermediary. Instead of making a direct trade, an indirect trade can be made instead. For instance, Mr B wants to buy a chicken from Mr A. However, Mr A wants a fish in exchange for their chicken.

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