Commodity money can be used for some other purpose while fiat money can only be used as a medium of exchange. Commodity money has value because someone declares that it has value while fiat money has value in itself. Commodity money must be a precious metal that people will value because of its beauty and usefulness.

Commodity money has some intrinsic value due to the content of precious metal it is made up of or backed by, but debasement or increases in precious metal supply can cause inflation. Fiat money is backed only by the faith of the government and its ability to levy taxes.

Which of the following best explains the difference between commodity money and fiat​ money? Fiat money has no value except as​ money, whereas commodity money has value independent of its use as money.

The main difference between commodity and fiat money is that commodity money has an intrinsic value. In other words, it has a use and value outside of its use as money. For example, gold can can be used in jewellery as well as a money. So even if it wasn’t used as money, it has value.

Commodity money is money whose value comes from a commodity of which it is made. Examples of commodities that have been used as media of exchange include gold, silver, copper, salt, peppercorns, tea, decorated belts, shells, alcohol, cigarettes, silk, candy, nails, cocoa beans, cowries and barley.

Hence, the type of material with which money is made is what gives commodity money its value because it is based on the perception of the buyer and seller of goods and services. A commodity money simply refers to money that derives its value from the commodity with which it is created from.

No one knows for sure who first invented such money, but historians believe metal objects were first used as money as early as 5,000 B.C. Around 700 B.C., the Lydians became the first Western culture to make coins. Other countries and civilizations soon began to mint their own coins with specific values.

Commodity currencies are most prevalent in developing countries (eg. Burundi, Tanzania, Papua New Guinea). In the foreign exchange market, commodity currencies generally refer to the New Zealand dollar, Norwegian krone, South African rand, Brazilian real, Russian ruble and the Chilean peso.

1.Is a $5 bill commodity money? Yes it is money because it serves as a medium of exchange and unit of account 4.

The U.S. dollar is fiat money, as are the euro and many other major world currencies. This approach differs from money whose value is underpinned by some physical good such as gold or silver, called commodity money. The United States, for example, used a gold standard for most of the late 19th and early 20th century.

The United States dollar is not backed by gold or any other precious metal.

EXPLANATION: The commodity money is the hardest to travel with as it does not have any fixed value and has only the value of the commodity for which it is made.

Fiat money

Commodity money is a type of good that functions as currency. In the 17th and early 18th centuries, for example, American colonists used beaver pelts and dried corn in transactions. 1 Possessing generally accepted values, these commodities were used to buy and sell other things.

When we use paper money to pay for food, the money is a medium of exchange as we are exchanging our money with their food. So, it plays a role of medium of exchange in purchasing our food.

The GAO says that coins have one big advantage over paper currency: durability. Since they don’t need to be replaced as often, coins wind up costing less than paper over the long run. There are some drawbacks to switching to coins, mostly involving transporting and processing the money.

Instead of using gold as the power behind the money, the government is the strength and the reason fiat money has value. The money has value because the government says it does. But many governments end up printing too much paper money, which leads to inflation. A dollar is no longer worth a dollar in gold.