fiat money is money that does not have intrinsic value and does not represent an asset in a vault somewhere. its value comes from being declared "legal tender"-an acceptable form of payment-by the government of the issuing country. in this case, we accept the value of the money because the government says it has value and other people value it enough to accept it as payment. for example, i accept u. s. dollars as income because i'm confident i will be able to exchange the dollars for goods and services at local stores. because i know others will accept it, i am comfortable accepting it. u. s. currency is fiat money. it is not a commodity with its own great value and it does not represent gold-or any other valuable commodity-held in a vault somewhere. it is valued because it is legal tender and people have faith in its use as money. there have been many forms of money in history, but some forms have worked better than others because they have characteristics that make them more useful. the characteristics of money are durability, portability, divisibility, uniformity, limited supply, and acceptability. let's compare two examples of possible forms of money:

a cow. cattle have been used as money at different points in history.
a stack of u. s. 20-dollar bills equal to the value of one cow.