CFA Level I · CFA Level I Exam · Monetary Policy
Which statement best describes how fiat money differs from commodity money?
Fiat money has value because the government declares it legal tender and people accept it. It has no intrinsic worth and is not convertible into a commodity such as gold, unlike commodity money, whose value derives from the material itself.
- AFiat money is backed by a fixed quantity of gold held by the central bank
- BFiat money has value because the government declares it legal tender and the public accepts itCorrect
- CFiat money has value mainly because of the intrinsic worth of the material it is made from
Explanation
Fiat money is declared legal tender by the government and is accepted because of confidence in it, not because of intrinsic value or convertibility into a commodity. The other options describe commodity-backed or commodity money.
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