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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.
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. Burundi, Tanzania, Papua New Guinea).
The adoption of token money has improved transaction efficiency, as the practicalty of transacting with sums of gold poses a larger security risk. In a commodity economy, money is a measure of the value of goods and services (prices) within a sovereign country or the same economy, as well as a particular commodity to pay off debts. [6]
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 ...
Specifically, prevailing fiat money is free-floating, and depending upon its supply market finds or sets a value to it that continues to change as the supply of money shifts with respect to the economy's demand. Increasing free-floating money supply with respect to needs of the economy reduces the quantity of the basket of the goods and services.
The global silver trade between the Americas, Europe, and China from the sixteenth to nineteenth centuries was a spillover of the Columbian exchange which had a profound effect on the world economy. Many scholars consider the silver trade to mark the beginning of a genuinely global economy , [ 1 ] with one historian noting that silver "went ...
The Mesopotamian civilization developed a large-scale economy based on commodity money. The shekel was the unit of weight and currency, first recorded c. 2150 BC, which was nominally equivalent to a specific weight of barley that was the preexisting and parallel form of currency.
Metallism is the economic principle that the value of money derives from the purchasing power of the commodity upon which it is based. The currency in a metallist monetary system may be made from the commodity itself (commodity money) or it may use tokens (such as national banknotes) redeemable in that commodity.