Commodity money

Commodity money is money whose value comes from a commodity out of which it is made. It is objects that have value in themselves as well as for use as money. The face value of specie and base-metal coins is set by government fiat, and it is only this value which must be legally accepted as payment for debt, which declares the coin legal tender.

Examples of commodities that have been used as mediums of exchange include gold, silver, copper, salt, peppercorns, large stones, decorated belts, shells, candy, barley etc. These items were sometimes used in a metric of perceived value in conjunction to one another, in various commodity valuation or price system economies. 

Commodity money is to be distinguished from representative money which is a certificate or token which can be exchanged for the underlying commodity. A key feature of commodity money is that the value is directly perceived by the users of this money, who recognize the utility as they would recognize the goods themselves.

That is, the effect of holding a token for a barrel of oil must be the same economically as actually having the barrel at hand. This thinking guides the modern commodity markets, although they use a sophisticated range of financial instruments that are more than one-to-one representations of units of a given type of commodity.