The term fiat is often associated with currency, especially those ‘legal tenders’ backed by the central government including the Federal Reserve. The term fiat refers to an arbitrary order. The term fiat rose to popularity with the advent of cryptocurrencies.

The government is responsible for circulating the fiat currency among the general public. Nither backed by gold, silver, or any other commodity, fiat currency is distributed by the central government. Fiat currency also allows governments to regulate the supply often resulting in inflation.

The government has the power to implement all the monetary policies including their supply, liquidity, and interest rates on lending and borrowing. Based on the liquidity, the fiat money supply is further classified into M’s.