A fiat currency is money issued by a government or central bank that isn't backed by gold or any other asset. The Icelandic króna, the euro and the US dollar are all fiat currencies. Their value rests on law, on trust and on the fact that people and businesses accept them as payment.
Fiat is Latin for "let it be done". The money has value because the state declares it to be the country's currency.
From gold to fiat
For a long time, many currencies could be exchanged for gold at a fixed rate. On 15 August 1971, the United States stopped exchanging dollars for gold with other central banks. Since then, the world's major currencies have all been fiat currencies.
In Iceland, the Central Bank of Iceland issues the króna and is in charge of monetary policy. The advantage of fiat money is flexibility: a central bank can change interest rates and respond to crises. The drawback is that supply isn't limited, and InflationInflationA general rise in prices over time, which means each króna buys less than before. erodes its value over time. Icelanders know this well. In 1981, two zeros were removed from the króna, so that 100 old krónur became one new króna.
Fiat and crypto
Bitcoin was partly designed as an answer to this. Its maximum supplyMaximum supplyThe largest number of units of a cryptocurrency that can ever exist under its rules, such as 21 million for bitcoin. is 21 million, and no central bank controls it. On the other hand, the price of bitcoin swings far more than the króna does.
StablecoinsStablecoinA cryptocurrency designed to keep a steady price, usually by tracking the US dollar or another currency. such as USDC, by contrast, are tied to a fiat currency, in this case the US dollar. Some central banks are also looking at issuing their own digital currencies, known as CBDCsCentral bank digital currency (CBDC)Digital money issued directly by a central bank, the electronic equivalent of banknotes and coins..
Everything in Myntkaup Learn is written and regularly reviewed by the Myntkaup editorial team. It is for education and is not investment advice. Editorial policy. Updated 18 October 2026.