What is a Fiat currency?

A fiat currency is a type of money that is issued by a government and is solely backed by the government's authority. Unlike commodity money such as gold or silver, fiat currency does not have a guaranteed exchange rate with any other asset. The value of fiat currency is determined by supply and demand, which can be influenced by the stability of the issuing government. Most commonly used currencies, such as the British pound and the US Dollar, are examples of fiat currency.