What Is Commodity Money?

Commodity money is a form of money that derives an intrinsic value from its underlying commodity and the supply and demand dynamics. Gold and silver have been accepted as commodity money for centuries because of their scarcity and desirability.

Commodity money has some inherent limitations, such as the challenge of transportation and storage of larger quantities. This physical challenge is one of the primary reasons why it was replaced by more flexible solutions like representative and fiat money.

Commodity money is in contrast to representative money and fiat money. Representative money has no intrinsic value but represents something of value — such as gold or silver — for which it…

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