Table of Contents
What are the advantages and disadvantages of commodity money?
Pros and Cons of Commodity Money
- Lower Inflation. Because commodity money is based on a physical resource, it is less prone to devaluing from inflation.
- Less Artificial Influence.
- Intrinsic Value.
- Good for Saving.
- Perishability.
- Variation in Quality.
- Slower Economic Growth.
- More Stability.
What are problems with commodity money?
One of the major problems with commodity money was quality. Individuals tended to use or sell their best products while their poorest products would be offered as commodity money. Additionally, even good quality commodities would deteriorate if retained too long.
What is the key advantage of commodity money?
The main advantage of commodity money is simply that it serves an additional purpose. For example, gold can be turned into jewelry, while cigarettes can be smoked. This gives the holder added options; he can either use or spend the money. This can also be seen as a disadvantage.
What do you mean by commodity money?
Commodity money is money whose value comes from a commodity of which it is made. Examples of commodities that have been used as media of exchange include gold, silver, copper, salt, peppercorns, tea, decorated belts, shells, alcohol, cigarettes, silk, candy, nails, cocoa beans, cowries and barley.
What are disadvantages of metallic money?
1) Not easily portable and jingle while carrying. 2) Not safe to carry from place to place. 3) Difficult to carry out large transactions. 4) Value of money fluctuates from time to time.
Why is commodity money accepted?
Its underlying value ensures that people trust it. That means it has value in and of itself, with people trading it freely in the knowledge that someone will accept it. By contrast, other forms of money only derive value from the trust people place in it.
What are two disadvantages of money?
The following are the various disadvantages of money:
- Instability. A great disadvantage of money is that its value does not remain constant which creates instability in the economy.
- Inequality of Income:
- Growth of Monopolies:
- Over-Capitalization:
- Misuse of Capital:
- Hoarding:
- Black Money:
- Political Instability:
What are the disadvantages of commodities?
Risk of Volatility. While commodity money typically has less volatility during turbulent economic developments,commodity money can still lose value.
Is gold a commodity or money?
Like commodities, gold is a tangible asset , but it is a unique tangible asset. Gold has attributes that set it apart from commodities, and therefore cannot be considered as a commodity. Nor should gold even be called a commodity as that belittles gold’s special status by overlooking those unique features that make gold different from commodities.
Is gold considered a commodity?
Gold is neither commodity nor currency. It combines the features of both making it commodity money, i.e. a commodity which historically has been chosen as money and still remains a global monetary asset.
What are the examples of commodity money?
Key Points A commodity money is a physical good that has ‘intrinsic value’ – a use outside of its use as money. Historic examples include alcohol, cocoa beans, copper, gold, silver, salt, sea shells, tea, and tobacco. There are four main characteristics of commodity money – it’s durable, divisible, easily exchangeable, and rare.