A:

Fiat money does not have any intrinsic value. What value it has depends on public confidence in the currency's issuer. Legal tender is any currency declared legal by a government. Many governments issue a fiat currency and then make it legal tender by setting it as the standard for repaying debt.

Commodity money, having value based in a commodity such as gold, is prone to fluctuate in value based on that commodity's price changes. Fiat money, however, retains only the value placed in it by public confidence. A strong economy typically increases the value of fiat money issued by that government. Inflation may occur when a government creates too much of a fiat currency, and the money supply increases too rapidly as a result. As of 2015, most paper currencies and coins are fiat currency.

The U.S. dollar is both fiat money and legal tender. In 1933, the U.S. federal government stopped allowing citizens to exchange currency for government gold. The gold standard, which backed U.S. currency with federal gold, ended completely in 1973 when the United States also stopped issuing gold to foreign governments in exchange for U.S. currency notes. Dollars are now backed by the U.S. government itself. As legal tender, the dollar is accepted for both public and private debts.

The dollar's value fluctuates with economic conditions and the federal government's management of interest rates. Since the government controls the money supply, it may print more dollars and create higher inflation as needed to influence economic conditions. As changes in public confidence in the U.S. government occur frequently, the value of the dollar may change rapidly even without ongoing federal management.

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