Fiat money performs the duties of a monetary unit for an economy: holding value, providing a numerical account, and facilitating exchange. Moreover, it has superior seigniorage, which means it is cheaper to produce than a currency that is directly linked to a product.

In the twentieth century, fiat currencies became popular as governments and central banks sought to protect their economies from the harshest effects of the economic cycle.

Since fiat money is not a rare or stable resource like gold, central banks have significantly more control over its supply, allowing them to influence variables such as credit supply, liquidity, interest rates, and money velocity. The Federal Reserve Bank of the United States, for instance, has a dual mandate to keep unemployment low and inflation low.