what is the difference between fiat money and fiduciary money ? ( 3 marks)
Dear Seenu,
Fiat money derives its value only because of government order (fiat). The currency becomes fiat money when the government declares it to be the legal tender. This money does not have intrinsic value, i.e. the real value is not equivalent to the face value printed on the notes and coins whereas fiduciary money refers to the non-legal tender money which is generally accepted as money on the basis of trust that their issuer commands. Thus, it is fiduciary money because acceptance of such money is not legal but optional. It consists of instruments such as cheques, drafts,etc.
Fiat money derives its value only because of government order (fiat). The currency becomes fiat money when the government declares it to be the legal tender. This money does not have intrinsic value, i.e. the real value is not equivalent to the face value printed on the notes and coins whereas fiduciary money refers to the non-legal tender money which is generally accepted as money on the basis of trust that their issuer commands. Thus, it is fiduciary money because acceptance of such money is not legal but optional. It consists of instruments such as cheques, drafts,etc.