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A commodity currency is a currency that co-moves with the world prices of primary commodity products, due to these countries' heavy dependency on the export of certain raw materials for income. [1] Commodity currencies are most prevalent in developing countries (eg.
Commodity money is to be distinguished from representative money, which is a certificate or token which can be exchanged for the underlying commodity, but only by a formal process. A key feature of commodity money is that the value is directly perceived by its users, who recognize the utility or beauty of the tokens as goods in themselves.
The alternative to a commodity money system is fiat money which is defined by a central bank and government law as legal tender even if it has no intrinsic value. Originally fiat money was paper currency or base metal coinage, but in modern economies it mainly exists as data such as bank balances and records of credit or debit card purchases, [3] and the fraction that exists as notes and coins ...
Countries with substantial natural resources that account for revenue and tax receipts have an implicit backing for their legal tender.
More specifically, the term representative money has been used variously to mean: A claim on a commodity, for example gold and silver certificates. [1] [2] [3] In this sense it may be called "commodity-backed money". Any type of money that has face value greater than its value as material
As such, commodity money gave way to representative money and gold and other specie were retained as its backing. Gold was a preferred form of money due to its rarity, durability, divisibility, fungibility and ease of identification, [91] often in conjunction with silver. Silver was typically the main circulating medium, with gold as the ...
The commodity itself constitutes the money, and the money is the commodity. [32] Examples of commodities that have been used as mediums of exchange include gold, silver, copper, rice, Wampum , salt, peppercorns, large stones, decorated belts, shells, alcohol, cigarettes, cannabis, candy, etc.
Because fiat money has "no intrinsic value," when two parties use the same fiat money then the person purchasing the product or service can focus on the time price and ignore the monetary price. [24] For example, if a person makes $5.00 an hour and wants to buy a product that costs $20.00 then the time price will be 4 hours and the actual price ...