Question

Write Short Notes on Commodity Money.

Answer 1

Whenever any commodity is used for the exchange purpose, the commodity becomes equivalent to the Money and is called commodity money. For example: if a silk merchant buys rice from the farmer, he pays the farmer with silk. Commodities that have been used as medium of exchange include gold, silver, copper, salt tea, large stones shells, alcohol, cigarettes, silk, cocoa beans, cowries and barley etc. Commodity money were generally used in the barter exchange system. The main drawbacks of commodity money are: lack of store of value & lack of common measure of value & need of double coincidence of wants. For the centuries commodity exchange system was being used by many civilizations, due to the introduction of metallic coins as a medium of exchange, it is not used in modern currency system.