Fiat Money vs Commodity Money The monetary system has always been central to the economy of any country. Report question . Both fiat money and commodity money can be used to make payments, but of the two, fiat money is much more popular and widely used in … Fiat money is a currency (a medium of exchange) established as money, often by government regulation, that does not have intrinsic value.Fiat money does not have use value (inherent utility, such as a cow or beaver pelt might have), and has value only because a government maintains its value, or because parties engaging in exchange agree on its value. The principal between fiat money and commodity money is that fiat money is a foreign exchange that is declared by the state or authorities as a approved tender or means for monetary transactions whereas commodity money is a money whose price is said the commodity or gadgets of which it is made like gold, silver, treasured stones, and so forth. 30 seconds . a. Fiat money is tied to a fixed quantity of gold and therefore protects against inflation. Fiat money is physical money—paper money and coins—while representative money is something that represents the intent to pay such as a check. Tags: Question 3 . A primary advantage of fiat money is that it gives the government control over the economy through its central bank. The Buzzle write-up below explains the differences between the two. In the Tang Dynasty (618-907), there was a high demand for metallic currency that exceeded the supply of precious metals. b.Fiat money eliminates the need for monetary policy and the Federal Reserve?s role in managing the money supply. Commodity Money and Fiat Money. Fiat money, in a broad sense, all kinds of money that are made legal tender by a government decree or fiat. Remember that this type of currency is a government-backed legal tender. d.The U.S. dollar is fiat money. Q. The term is, however, usually reserved for legal-tender paper money or coins that have face values far exceeding their commodity values and are not redeemable in gold or silver . The people were familiar with the use of credit notes, and they readily accepted pieces of paper or paper drafts. Fiat money only has value as a medium of exchange. Fiat money originated from China in the 10 th century, mainly in the Yuan, Tang, Song, and Ming dynasties. SURVEY . “The undermining of fiat money has been going on for over 40 years, and this has led to a lower standard of living, undermined social trust, and given far more power to the government. If a country’s required reserve ratio is 8%, when the central bank puts $1,000 of new currency into circulation, by how much can the money supply grow assuming all currency is deposited in a bank and no banks hold excess reserves? Fiat vs. Representative Money: An Overview . b. fiat money with no intrinsic value. 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