DEFINITION of 'Chartalism'

A non-mainstream theory of money that emphasizes the impact of government policies and activities on the value of money. The early-20th-century German economist Georg Friedrich Knapp first developed the theory of chartalism, which defines money as a unit of account with value that is determined by what the government will accept as payment for tax obligations. In other words, chartalism states that money does not have intrinsic value, but is given value by the government.

BREAKING DOWN 'Chartalism'

In contrast, the theory of metallism defines money as a commodity with intrinsic value that makes it widely accepted as a medium of exchange (precious metals such as gold). The term "chartalism" comes from the Latin word charta, which means ticket or token – items that may be accepted as payment, but which do not have intrinsic value.