I'm relatively confused about how a fiat currency can stay afloat, as how does it exactly distribute the money to begin with, and then operate thereof with accepted value if it isn't supposed to rely on material goods?
How does a government distribute fiat money?
byu/Epicnessofcows inAskEconomics
Posted by Epicnessofcows
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Step 0:
The state defines a currency and declares it legal tender. As soon as that happens, there’s real demand for it because the government requires taxes to be paid in this currency. If you need dollars to pay taxes, dollars automatically have value to you.
Step 1:
Money is created in two ways. One; when the government spends, it pays workers and any other beneficiaries in dollars. Two; when banks make loans, they create deposits denominated in dollars. The Federal Reserve banks set the conditions under which banks can do this and also supply reserves so that payments clear without any friction.
The currency “stays afloat” because it’s supported by legal and fiscal (and later financial) pillars.
Same for hard currency, by the way. Unless the government declares gold legal tender, or allows banks to buy it from you for its dollar value; your gold is no good. It’s just another (useful) commodity.