What currency is backed by a commodity?

Commodity money has some intrinsic value due to the content of precious metal it is made up of or backed by, but debasement or increases in precious metal supply can cause inflation. Fiat money is backed only by the faith of the government and its ability to levy taxes.

Fiat money is both physical money and legal tender and is backed by a nation’s government. Representative money is backed by a physical commodity such as precious metals or instruments like checks and credit cards.

Cryptocurrency is another fiat money alternative that’s on the rise. Cryptocurrencies such as Bitcoin could be used in the future as the main form of currency, but for now, it’s still not widely accepted.

In contrast to commodity-based money like gold coins or paper bills redeemable for precious metals, fiat money is backed entirely by the full faith and trust in the government that issued it . One reason this has merit is because governments demand that you pay taxes in the fiat money it issues.