Types of money
The idea that anything can be money if we all just believe hard enough in it, has been very popular among some regimes and politicians. Yes, of course, anything can be used as money, just like anything can be used as toilet paper, but choices have consequences. — Saifedean Ammous.
Free market money
Its adoption is voluntary. E.g.: seashells, Rai Stones, gold or bitcoin.
The word "Fiat" originates in Latin, meaning decree, mandate, order.
Fiat money (e.g. $ or €), also called Political Money or State Money, is any currency exclusively issued and priviliged by the state, which establishes decrees that involve costs in the use of another currency, like for example:
-Anti-counterfeit decree, which grant the Central Bank the monopoly of printing money.
-Legal tender decree, which recognizes a currency to be valid for extinguishing any debt when offered ("tendered"), even if it is against the will of the receiver. Its acceptance is imposed.
Legal tender status also implies that the fiat money is the Unit of Account used by official entities to calculate and impose taxes, which create frictions to the use of other money.
-Anti-money laundering decree, which establish restrictions to the acceptance of money that is not controlled by an exclusive group of commercial banks that keep personal information about the money owners and its source.
-Mandatory exchange decree, which forces the exchange of the main form of money to the fiat currency, like for example gold for $ in 1933. It harms the distribution of the competitor money while benefiting that of the imposed one.
Image: fiat money from the Yuan Dynasty
There are 2 types of money: voluntarily adopted money and imposed by force money (aka fiat).
A fiat currency tend to be used over other fiat currencies