Commodity Money

The term commodity money denotes currency which has material value in itself, in addition to its face value. Examples of commodity money include precious metals, salt, pepper corns, tea, cigarettes, alcohol and decorative rings.

In the past, commodity money was widely used to settle commercial transactions. Today, it plays a subordinate role, with fiat currencies having been established as the predominant form of currency. However, commodity money continues to play a role in regions where fiat currency is either unavailable or prohibited. The use of cigarettes as a currency in prisons is one example this.

More on this topic:
Fiat currency explained

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