Q. 85.0( 1 Vote )

What is a ‘legal tender’? What is ‘fiat money’?

Answer :

Legal Tender – It is a medium of payment recognised by a legal system to be valid for meeting a financial obligation. Legal tender is any official medium of payment recognized by law that can be used to extinguish a public or private debt, or meet a financial obligation. It is the money issued by monetary authority or government, which cannot be refused by any person in payment for transactions. Government issues an order describing what is money and that becomes legal tender money.

For ex - In India currency notes and coins are legal tender money.


Fiat Money – Fiat is a Latin word, which means 'let there be'. Fiat money refers to any currency lacking intrinsic value (without back up of gold or silver or any other reserves) that is declared legal tender by a government. It is any money backed by the order of government to act as money. People have to accept it in exchange for goods and services and for discharge of debt.. It is also called legal tender as it circulates in country on government's order.


Ex - Dollar, they are just pieces of paper printed with symbols - they have no intrinsic value of their own. They only become valuable when the government decrees that they have worth


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