TLDR:
Fiat currency is government-issued money that is not backed by a physical commodity like gold or silver, but instead derives its value from government declaration and public trust.
Why Fiat Currency Matters
Understanding fiat currency is fundamental to understanding modern macroeconomics, monetary policy, and inflation. Since fiat money is not backed by a physical commodity, its value depends entirely on government stability and public trust. Central banks can expand or contract the money supply to manage economic cycles — a power that cryptocurrency advocates argue creates inherent risks of inflation and currency debasement. For startups operating internationally, fiat currency fluctuations create foreign exchange risk that must be managed through hedging strategies or treasury policy.