Ludwig von Mises Distinguishes "Credit Money" from "Fiat Money"

Now suppose the issuing institution suspends redemption of its claims on the genuine money but that the public believes the suspension is only temporary. For example, during World War I, the major belligerents, except the United States, abandoned the gold standard because they wanted to use the printing press to pay for the war effort. Mises classified the British pound, the French franc, and other currencies during this period as credit money. The British people still used the pound as their currency, even though it could no longer be immediately redeemed for a specified weight of gold. However, they thought that at some point, the British pound would again be redeemable in gold. During the suspension, the pound was no longer a money substitute; it no longer performed the same services to the owner as physical yellow metal. However, people still treated it as a claim, albeit one of uncertain maturity. The British pound still functioned as a medium of exchange, and it was still commonly accepted. Therefore, it was a form of money. In light of all of these considerations, Mises classified it as a credit money. When the British went back on the gold standard, the British pound would cease being a credit money and would revert to being a money substitute, where the money in question was gold.

Now push the analysis one step further: Suppose a government (1) has been issuing notes that are instantly redeemable claims on a commodity money, (2) the public uses these claims as interchangeable with the commodity money itself, so that the claims become money substitutes, (3) the government decides to suspend redemption of the claims, (4) the public believes that the suspension is permanent, and yet (5) the public still uses the notes issued by the government as a commonly accepted medium of exchange. In this scenario, Mises would classify the government notes as fiat currency. They are neither commodity money, money substitutes, nor even credit money because they are no longer claims on anything at all. Yet they still satisfy the definition of money because the public commonly accepts the government's paper notes in trade, with the intention of using them in the future to acquire other goods and services.

Such a money is called fiat money because the government decrees “by fiat” the particular characteristics that an object must possess in order to count as part of this stock of money. For example, ever since Richard Nixon closed the gold window in 1971, the U.S. dollar and other major currencies have been fiat monies.

--Robert P. Murphy, Choice: Cooperation, Enterprise, and Human Action (Oakland, CA: Independent Institute, 2015), Kindle e-book, 202-203.