Which statement correctly distinguishes commodity money from fiat money?

Which statement correctly distinguishes commodity money from fiat money?

• A. Commodity money has intrinsic value; fiat money has no intrinsic value and is government-issued.
• B. Commodity money is government-issued; fiat money has intrinsic value.
• C. Both have intrinsic value; only usage differs.
• D. Fiat money is backed by a commodity reserve; commodity money is not.

Answer: (A)

Commodity money has intrinsic value in the material it’s made from, like gold or silver, so the money itself is worth something even apart from its use as currency. Fiat money, by contrast, has value mainly because a government declares it legal tender and people trust that declaration, not because the material itself is valuable. Modern money is largely fiat, relying on confidence and legal backing rather than a commodity's worth. That’s why the statement that commodity money has intrinsic value while fiat money has no intrinsic value and is government-issued best captures the distinction. The other ideas don’t fit because: commodity money isn’t defined by who issues it—the key point is the material’s inherent value; fiat money can lack intrinsic value even if it is physically produced by the government; and fiat money is not typically backed by a physical commodity reserve, which would describe a commodity-backed or representative money rather than fiat money.

Commodity money has intrinsic value in the material it’s made from, like gold or silver, so the money itself is worth something even apart from its use as currency. Fiat money, by contrast, has value mainly because a government declares it legal tender and people trust that declaration, not because the material itself is valuable. Modern money is largely fiat, relying on confidence and legal backing rather than a commodity's worth.

That’s why the statement that commodity money has intrinsic value while fiat money has no intrinsic value and is government-issued best captures the distinction.

The other ideas don’t fit because: commodity money isn’t defined by who issues it—the key point is the material’s inherent value; fiat money can lack intrinsic value even if it is physically produced by the government; and fiat money is not typically backed by a physical commodity reserve, which would describe a commodity-backed or representative money rather than fiat money.