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Sunday, May 10, 2009

Fiat Money

Fiat Money, type of currency issued by governments as legal tender, the value of which is based solely on decree or law rather than on actual coin or precious-metal reserves (called specie), and the redemption of which is not guaranteed by the government.

Such money was issued in quantity in the United States during the American Revolution and during the American Civil War. The Civil War currency, known colloquially as greenbacks, was made redeemable in specie by the Specie Resumption Act of 1875.

The issuance of fiat money frequently results in a steeply spiraling inflation, as specie-based currency is withdrawn from circulation, causing a sharp rise in prices.

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