Commodity money
Topic: International Trade: Patterns, Ports and the WTO · NCERT: Class 12, Ch 8 "International Trade"
Meaning
Commodity money is money made of an object that has value in itself. People used it before coins and paper notes existed. It made trade easier than barter (a direct swap of goods), because a barter swap only works when each side wants what the other has. The objects were usually rare or useful. Examples include flint, obsidian, cowrie shells, tiger's paws, whale's and dog's teeth, skins, furs, cattle, rice, peppercorns, salt, small tools, copper, silver and gold.
Example
In ancient Rome, salt was costly because it came only from rare rock salt, so it was used as a form of payment. The English word "salary" comes from the Latin salarium, meaning payment in salt.
Don't confuse with
- Barter system: in barter, goods are swapped directly for other goods. With commodity money, one valued object is used to pay for many different goods.
- Paper money (fiat money): a note has almost no value as an object. Its value comes from trust in the government that issues it.