What defines flat money?

Flat money is correctly defined as currency that has no intrinsic value and is declared by the government as legal tender. This means that it is not backed by a physical commodity like gold or silver; instead, its value comes from the trust and confidence that people have in the government that issues it. The government establishes it as legal tender, which means it must be accepted as payment for debts and goods within the country.

This characteristic of flat money allows it to function effectively in an economy, as it provides a stable medium of exchange. Because it is not tied to a commodity, the money supply can be managed more flexibly by the central bank, adjusting it in response to economic conditions. This ability to control the money supply is crucial for managing inflation, employment, and overall economic growth.

Other options refer to different monetary concepts. For example, backing by physical commodities pertains to commodity money, while intrinsic value refers to the market perception of worth, which does not apply to flat money. The idea of a form of digital currency without regulation is not related to flat money and instead relates more to cryptocurrencies or other forms of digital finance.