What is commodity backed money?

These are called commodity-backed money. Commodity-backed. Because their value is being backed up by the value of whatever commodity they represent. Another term that you might hear for them is representative money, because they are representing another good, representative. In this case, silver or gold.

Why is commodity backed money important?

Commodity-backed money can help promote price stability and reduce inflation, as the value of the currency is linked to the value of a physical commodity. But Commodity-backed money can limit a government's ability to manage its currency in response to economic changes. There are several types of commodity-backed money, including: Gold standard.

Why is commodity backed money so expensive?

High storage and transportation costs. Commodity-backed money requires the storage and transportation of physical commodities, which can be costly and logistically challenging. Commodity-backed money is a type of currency guaranteed by a physical commodity, such as gold or silver.