What is the FIAT money system?

Generally when central Bank prints it country's currency it is backed by the foreign exchange reserves bullion etc and it is printed only on how much the above is with central Bank.

But in the FIAT money system there is no such backing or reserves with the central Bank and it is printed without any such resrves to back up.

For example previously the $ can be exchangeds with an ounce of gold

So the Fiat Money is run on the belief with the government and it is a legal tender money and it cannot be refused because it is issued and guaranteed by the Government .

In archaic times it was thought that circulating currency needed to be backed up by gold or silver in order to have any value. That is, at some point you could take your $20 bill to the government, and demand $20 in gold coins in return. That gave people confidence that the money was worth $20. (And more than that. Governments would keep vaults full of gold bricks, and settle international trade balances by swapping those bricks. The idea always being that, there was enough gold coins or bricks on hand to represent all the money circulating.)

Eventually people realized that it's not necessary to back money with gold or silver ... people need money and will use money for its intended value, regardless of whether it its somehow backed by a valuable commodity. As long as the money supply is kept constrained, supply & demand means the money will have its value.

So this sort of money that is not backed by a commodity, but is accepted as money because the government declares it is the official currency, is called "fiat money". It has value by government fiat. (Fiat = "dictate" or "declaration").

Every country on earth without exception uses fiat money today. The era of backed-money is over.

FIAT money is government's IOU watermark on that bill. i know Government cannot fulfill the promise but I also know not everyone will rush to encash it (and against what?).

yeah, the land and waters and the mines - the government has are much beyond the gold.

I will share:

*When you sign a mortgage, you agree to a higher amount of credit. You give a 'promise to pay' . Credit is a valueless number, its just a number representing what you can work to create the value for future payments.

*The agency called the 'Federal Reserve', takes your credit number (promise to pay) and turns it into valueless paper dollars.

NOTE: Your valueless credit number is turned into valueless paper dollars with fees attached to the paper dollars, causing them to become negative value (debt). In other words, you are made to pay interest on your own credit. The paper dollars become debt when fees are attached because they have NO backing. Notice they are called dollar BILLS?

*When you work, you are creating the value necessary for the pay you recieve to make your house payments.

NOTE: The paper dollars you recieve for pay do NOT contain value before you work, but AFTER you work.

* When the Reserve/IRS collects back the paper dollar debt they turned your credit into, they will collect it back WITH VALUE. Can you see? They turn the homeowners credit into debt, the homeowner is forced to pay this debt back, WITH value.

The homeowner is paying interest (usage fees) on paper dollars that do NOT have backing.

The homeowner 's credit is used for profits. The homeowner is lead to believe they are paying back value received from a loan.

This is how I understand the fiat system works. They give us printed paper dollar debt, we pay back the debt with value.

Why its NOT money? Because the paper dollars needs your time/energy and labor to have value.