What Makes a Currency 'Fiat' or 'Commodity' Based?

Money can be like a toy. Sometimes it's just paper, and sometimes it's something real like gold or oil. When money is just paper, we call it fiat money. When it’s backed by something valuable, like gold, we say it's commodity-based currency.

Why Does It Matter?

If a country uses fiat money, the government can print more of it whenever they want. But if it's commodity-based, you need to have enough gold or oil to back up the money you make.

Take the quiz →

Examples

Your piggy bank is like a commodity-based currency because it holds real money you can use later.
A country using only paper money is like a kid who believes the teacher will give them extra candy just for trusting them.
When your parents print more allowance slips, it's like printing fiat money, but if they don’t have enough snacks to back it up, the value drops.

Ask a question

Discussion

Recent activity

Categories: Economics · Currency,Fiat Money,Commodity Money