What are the benefits of commodity money?

commodity money is any form of currency that can serve a purpose other than money. The most famous examples are expensive metals such as gold and silver, although for this purpose other items such as cigarettes or even pepper have been used or used. It offers benefits such as greater flexibility for money holders, rapid wealth and built -in inflation brake in the economy. It is important to realize that modern economists claim that these advantages have restrictions and are balanced by a disadvantage, and therefore this type of money is almost never used as a currency in developed economies.

There are four main types of money. The most common type is Fiat money, a form of currency - usually a coin or banking remarks - which derives its value simply from the fact that the government declared it a legal tender, which means it must be admitted to settle debts. Representative money is where the token, such as a note or certificate, comes from its values ​​to promise that it can be exchangedn from a commodity such as holding. Komerční banka money is the money that exists in the banking system. Since banks usually lend and lend much more money than they have in cash, Komerční banka money is considered non -physical.

The main advantage of commodity money is simply that it serves another purpose. For example, gold can be turned into jewelry, while cigarettes can be smoked. This gives the holder added options; Can either use or spend money. This can also be considered a disadvantage. For example, if cigarettes become informal currency in prison, cigarette smoking can become a costly activity.

Another advantage of this type of money for some people is that it is possible to get money that was not previously circulated. If, for exampleE of its roles for jewelry. Of course, for an economy as a whole, this may be the main disadvantage, as it will act against the way in which money is used in the market economy to eventually decide how assets are used and assigned.

theoretically, commodity money has built -in limitation of offerings; For example, without a great discovery, the amount of silver remains constant. This contrasts with Fiat money, where the government can make more money either through technical measures such as quantitative release or simply through press notes. This means that there is a risk that government actions cause inflation and devaluation of existing money, which is not so likely with gold or other commodities.