The correct option is 2 and 3 only.
Explanation
Money can be classified based on its intrinsic value and the legal backing it possesses. Fiat Money refers to currency that is established as money, often by government regulation, but does not have intrinsic value.
Statement-wise Analysis:
- Statement 1 is Incorrect: Fiat money does not have intrinsic value equal to its face value. Intrinsic value refers to the value of the material used to make the money (e.g., the value of gold in a gold coin). In the case of fiat money (like paper currency), the face value is significantly higher than the cost of the paper or metal used to produce it. Money where intrinsic value equals face value is known as Full-bodied Money.
- Statement 2 is Correct: The value of fiat money is derived from the guarantee and order (fiat) of the issuing authority, typically the government or central bank. It is accepted as a medium of exchange because the law requires it to be accepted for the settlement of debts.
- Statement 3 is Correct: In modern economies, fiat money primarily consists of currency notes and coins issued by the central bank or government. These are legal tender and circulate within the economy based on the trust reposed in the issuing authority.
Key Takeaway:
Fiat Money has no intrinsic value and derives its value solely from government regulation or law, unlike Commodity Money which possesses value in itself (e.g., gold or silver).