The term
Commodity Money signifies that the value of this specific form of currency is derived from the specific commodity behind its creation. Commodity money has huge importance in the history of money creation because of the role it played in the barter system.
The commodity money, over the years has served the purpose of a medium of exchange. The various forms of commodity money are as follows:
Candy
Gold
Stones
Silver
Belts
Copper
Shells
Salt
Cigarettes
Peppercorns
Historically it has been observed that the utility of the commodity money is determined by the users of that specific form of money. The commodity money serves more like a token and it might be concluded that this thought is the guiding force of the modern commodity markets.
However the financial instruments used in these commodity markets are more advanced in the way that they possess more than a one-to-one representation of the value of the particular commodity. The notion of commodity money proves to be useful especially when there is scarcity of conventional means of money.
History is witness to the fact that things like wampum, maize, iron nails, beaver pelts and tobacco had been used as commodity money prior to the revolution of the United States. Cigarettes had been used as commodity money in Germany. It is still in use in various correctional homes all over the world.
So far gold has been the best commodity out of which currency could be made. Following are some of the reasons as to why gold has been enjoying this status:
- Compactness
- Convenience to Work into Jewellery
- Decorative and Operational Uses
- Convenience in Trading with Other Metals
Commodity money is significantly different from the representative money, which is more conventional in the way that they are certificates or tokens, which are eligible to be interchanged with any fundamental commodity.