Commodity money

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Commodity money is money whose value comes from a commodity out of which it is made. It is objects that have value in themselves as well as for use as money.[1]

Examples of commodities that have been used as mediums of exchange include gold, silver, copper, salt, peppercorns, large stones, decorated belts, shells, alcohol, cigarettes, cannabis, candy, barley etc. These items were sometimes used in a metric of perceived value in conjunction to one another, in various commodity valuation or price system economies.

Contents

Aspects

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 as the trade is good for that source and the product. A key feature of commodity money is that the value is directly perceived by the users of this money, who recognize the utility or beauty of the tokens as they would recognize the goods themselves. That is, the effect of holding a token for a barrel of oil must be the same economically as actually having the barrel at hand. This thinking guides the modern commodity markets, although they use a sophisticated range of financial instruments that are more than one-to-one representations of units of a given type of commodity.

Since payment by commodity generally provides a useful good, commodity money is similar to barter, but is distinguishable from it in having a single recognized unit of exchange. (Radford 1945) described the establishment of commodity money in P.O.W camps

Radford documented the way that this 'cigarette currency' was subject to Gresham's law, inflation, and especially deflation.

In another example, in U.S. prisons, after smoking was banned in about 2003, commodity money has switched in many places to cans or foil pouches of mackerel fish fillets, which have a fairly standard cost and are easy to store. These may be exchanged for many services in prisons where personal possession of currency is prohibited.[3].

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