> For the complete documentation index, see [llms.txt](https://education.stealth.money/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://education.stealth.money/money/how-is-fiat-money-created.md). # How is Fiat Money created What is **fiat money**? Fiat money is paper money created and issued by a Government (central bank) backed by the stability of its economy. The supply process of fiat money is effected through monetary policy. What is **monetary policy**? Monetary policy is how central banks influence the economy by raising or lowering the money supply in circulation. Too much money printed in supply leads to multi-year runaway inflation, too little supply can lead to recession where businesses close down and many jobs lost en masse. The main goal of central bankers is to maintain a balance by enabling maximum employment while keeping prices stable.

Freshly printed fiat money

**Fiat money** gives central banks greater control over the economy because they can control how much money is printed. One danger of fiat money is that governments can print too much of it, resulting in hyperinflation like what happened in Venezuela and Zimbabwe. The role of money creation is assigned to the central bank of each country. In America they call their central bank the Federal Reserve (aka the Fed), in most countries it is called the central bank. The Federal Reserve, as America's central bank, is responsible for controlling the supply of U.S. Dollars in circulation. Now remember we just explained how the global currency is the US Dollar because the whole world trades with it. For example when Saudi Arabia sells their oil exports, the prices are quoted in US Dollars and paid in USD. The same applies for every other commodity and large-scale business transactions. This makes the US and its central bank (the Fed) the most influential economic institution in the world. Money is power so if the world transacts with your currency, that gives you unrivaled influence and dominance, in other words if the United States sneezes, the rest of the world catches a cold. The US central bank is indirectly responsible for inflationary pressures globally based on its monetary policy. If the US monetary policy is expansionary it leads to higher levels of inflation in America and the rest of the world. If the US monetary policy is contractionary, it tackles inflation by reducing the money supply which could lead to recession. The more money printed by a Government consequently leads to inflation and loss of purchasing power, the central bank responsibility is to maintain a balance. When interest rates go up, it becomes more expensive to borrow and that means less spending, less demand, the economy cools and inflations comes down but at the risk of a recession. Central banks can reverse this by cutting interest rates, making it cheaper to borrow which increases demand, and creates many more jobs stimulating the economy.
## Difference between expansionary and contractionary monetary policy. Expansionary monetary policy (aka quantitative easing) is when a central bank increases the money supply which fights recessions and increases economic growth. Contractionary economic policy (aka quantitative tightening) pulls money out of the economy in order to fight inflation by mopping up the excess liquidity. While central banks are meant to be independent and free of Government interference or persuasion, historically they always get entangled eventually. The politicians and their backers have elections to win, and voters will not be voting for you or your party when there is runaway inflation, there's also the aspect of systemic corruption. All these factors have led to a rigged system at the expense of the masses. A scenario where the rich get richer and everyone else has to manage. Taxes get higher for the masses but the wealthy can employ tax avoidance. Persistent inflation which affects the poor the most, while cheap bank loans for the rich who can afford to be financially flexible, all while quality of life and living for the poor drops. This is what happens where politics & governance is not separated from money policies. The African nation of Zimbabwe provided an example of the worst-case scenario in the early 2000s. In response to serious economic problems, the country's central bank began to print money at a staggering pace, resulting in hyperinflation. Experts suggest the currency lost 99.9% of its value during this time. Prices rose rapidly and consumers carried bags full of money just to purchase basic staples like bread. At the height of the crisis, the government of Zimbabwe was forced to issue a 100-trillion Zimbabwean dollar note.
### In Summary Fiat money gives central banks greater control over the economy because they can control how much money is printed. One danger of fiat money is that governments can print too much of it, resulting in hyperinflation. It is the duty of the central bank of every country through its central bank to maintain a balance through its monetary policy while the Government plays its part with fiscal policy (public spending, tax revenues, exports, foreign reserves etc). However due to politics as well politricks, we have a fiat/central banking system that benefits those at the top creating an unfair, somewhat rigged monetary dispensation. --- # Agent Instructions This documentation is published with GitBook. GitBook is the documentation platform designed so that both humans and AI agents can read, navigate, and reason over technical content effectively. Learn more at gitbook.com. ## Querying This Documentation If you need additional information that is not directly available in this page, you can query the documentation dynamically by asking a question. Perform an HTTP GET request on the current page URL with the `ask` query parameter, and the optional `goal` query parameter: ``` GET https://education.stealth.money/money/how-is-fiat-money-created.md?ask=&goal= ``` `ask` is the immediate question: it should be specific, self-contained, and written in natural language. `goal` is optional and describes the broader end goal you are ultimately trying to accomplish on behalf of the user. GitBook uses it to tailor the answer towards what is most useful for that goal. The response will contain a direct answer to the question and relevant excerpts and sources from the documentation. Use this mechanism when the answer is not explicitly present in the current page, you need clarification or additional context, or you want to retrieve related documentation sections.