Standard Money

What Is Fiat Currency?

Fiat currency refers to the money recognized by a government as legal tender for paying taxes, settling debts, and conducting everyday transactions. This includes both physical cash and bank account balances. Fiat currency is backed by the central bank and government, serving as the standard unit of account for commercial activities. It also acts as a reference point for pricing, trading, and settling crypto assets.

The concept of "legal tender" means that businesses and individuals are legally obligated to accept fiat currency for debt repayment, such as wages or taxes. For crypto users, asset values are typically denominated in fiat currency, and both the purchase and sale of crypto assets generally require entering or exiting the traditional financial system through fiat.

How Does Fiat Currency Work?

Fiat currency is issued and managed by central banks, which are responsible for formulating monetary policy—such as controlling interest rates and money supply—to influence borrowing costs and inflation. The banking system facilitates the circulation of fiat currency between individuals and businesses through deposits and loans.

When you pay with a card or mobile app at a store, while it appears as an instant payment, what actually happens is an update and settlement between banks’ ledgers. Settlement refers to the process where banks reconcile accounts and transfer funds from your bank to the merchant’s bank. Payment networks and clearing systems ensure that fiat currency moves securely and traceably throughout the economy.

What Is the Relationship Between Fiat Currency and Crypto Assets?

Fiat currency serves as the gateway to and from the crypto world. The vast majority of users buy crypto assets with fiat currency and convert them back when needed. Many trading pairs are priced in fiat or tokens pegged to fiat, making it easier to understand market prices and track gains or losses.

Stablecoins are crypto tokens designed to maintain price parity with fiat currencies—most commonly the US dollar. The aim is for one stablecoin to equal one unit of fiat currency, enabling efficient trading and transfers. For example, USDT is a stablecoin pegged to the US dollar, widely used for rapid on-chain transfers.

How Does Fiat Currency Participate in Web3?

Fiat currency typically enters Web3 through regulated deposit processes at exchanges or payment channels, where it is then converted into on-chain assets.

Step 1: Register an account on Gate and complete KYC (Know Your Customer). KYC is an identity verification process required for regulatory compliance and account security.

Step 2: Deposit fiat funds. You can choose a bank transfer or supported third-party payment option, and use Gate’s fiat purchase feature to select your target asset (such as USDT).

Step 3: Convert fiat currency into stablecoins or other crypto assets. On the order page, confirm the amount, fees, and exchange rate before completing the transaction. Pay attention to transaction fees and potential spreads.

Step 4: Transfer to your personal wallet or continue trading. If you wish to use your assets on-chain, you can withdraw from Gate to your wallet address (for example, transferring USDT to your Ethereum or TRON address). Always double-check the network and address—using the wrong network can result in irreversible loss of funds.

Risk Note: Both deposits and withdrawals involve security risks; always enable two-factor authentication and beware of phishing links. Exchange rate fluctuations may impact costs; fees and settlement times vary across different networks.

What Is the Difference Between Fiat Currency and Stablecoins?

Fiat currency is supported by central banks and legal systems, making it suitable for tax payments and debt settlement—it is the "real-world money" held in cash or bank accounts. Stablecoins are on-chain tokens that attempt to maintain price parity with fiat currency but rely on issuer reserve management and market mechanisms.

Take USDT as an example—it claims to be backed by reserves such as cash equivalents. Many trading pairs on exchanges are quoted in USDT for fast settlement. However, stablecoins may experience "depegging" (temporary price deviation from their peg), or face issuer, compliance, or transparency risks regarding reserves. Fiat currencies are subject to macroeconomic risks like inflation and interest rate changes.

What Is the Connection Between Fiat Currency and Central Bank Digital Currency (CBDC)?

CBDC stands for "Central Bank Digital Currency," essentially representing a digital version of fiat currency issued and managed directly by a central bank, operating on a controlled ledger system. Unlike open blockchains, CBDCs typically run on permissioned networks with a focus on regulation, privacy tiers, and programmable payments.

According to the Atlantic Council’s CBDC Tracker (2024-2025), most major economies are exploring or piloting CBDCs, with some having already launched limited implementations. This indicates that fiat currency digitization is a long-term trend; however, CBDCs differ fundamentally from decentralized crypto assets in terms of technical architecture and governance.

What Are the Challenges for Fiat Currency in Cross-Border Payments and Compliance?

Cross-border payments with fiat currency often face high fees, slow settlement times, and strict compliance requirements. Compliance usually involves KYC (identity verification) and AML (Anti-Money Laundering) rules to prevent illicit fund flows. Regulatory standards vary by country; exchange rates and capital controls also impact the efficiency of fund transfers.

Depositing or withdrawing fiat at an exchange may require additional identification documents and longer review periods. Banks have varying levels of acceptance for crypto-related transactions, sometimes requiring users to provide detailed explanations of fund usage. Choosing regulated channels and being informed about fees and timelines can help reduce friction.

Key Takeaways on Fiat Currency

Fiat currency is the foundational unit for valuation and settlement in the traditional economy—and serves as both a reference point and entryway into the crypto world. Understanding how fiat is issued and circulates helps ensure secure deposits on Gate, smooth purchases of stablecoins, and effective on-chain operations. Compared with stablecoins, fiat is backed by national governments; stablecoins rely on issuer reserves and market dynamics. Compared with CBDCs, CBDCs are digital representations of fiat with added regulatory features and programmability. Cross-border transfers and compliance present real-world challenges—preparing documentation, verifying networks and addresses, monitoring fees and exchange rates can significantly reduce risk.

FAQ

What Is the English Term for 法币?

The English term is “Fiat Currency.” "Fiat" comes from Latin meaning “by decree,” highlighting that the value of fiat currency derives from government mandate making it legal tender. By contrast, crypto assets like Bitcoin are not backed by any government.

All My Assets Are in Fiat—How Can I Enter Web3?

You can convert fiat into crypto assets through an exchange such as Gate. The basic process: register an account → complete identity verification → link your bank card or choose a fiat deposit method → select your desired crypto asset → confirm the transaction. Once complete, you can transfer your crypto assets into a wallet for on-chain operations or participate directly in Web3 applications like DeFi or NFTs within the platform.

Why Don’t Some Countries Recognize Bitcoin as Legal Tender?

Governments typically only recognize their own issued currency as legal tender due to considerations around economic sovereignty and monetary policy control. Bitcoin is governed by algorithms rather than states, with a fixed supply—governments cannot adjust its issuance to manage their economies. Additionally, features like anonymity and borderless transfer make it difficult for regulators to monitor fund flows or taxation in real time.

What Is the Fundamental Difference Between Stablecoins and Fiat?

Stablecoins are crypto assets built on blockchains, generally pegged 1:1 to a fiat currency such as the US dollar to maintain price stability. Fiat currency is real money issued by governments with legal tender status. The advantage of stablecoins is rapid on-chain transferability; however, their value ultimately depends on backing from fiat reserves. In essence: stablecoins act as “digital proxies” for fiat currencies—connecting traditional finance with blockchain ecosystems.

What Does ₮ Symbolize? Which Fiat Currency Does It Represent?

₮ is the symbol for the Mongolian Tugrik, Mongolia’s official fiat currency. Different countries use distinct symbols for their currencies—for example, ¥ stands for Chinese Yuan, $ for US Dollar, € for Euro. Recognizing these symbols helps you quickly identify currency types in international transactions and exchanges.