I have seen it suggested that currencies that are backed by a commodity are generally considered to be a bad idea in most cases. However, I have done a bit of my own research into representative money etc. and I cannot find a definitive explanation of why this might be the case.

So, my question is this: Are there qualities of commodity backed currencies that make them a bad idea?

  • $\begingroup$ You could search for other questions that discuss the gold standard. In particular, the following question appears similar: economics.stackexchange.com/questions/4686/… $\endgroup$ Nov 12 '18 at 19:33
  • $\begingroup$ What happens if you don't have enough commodity to back the amount of currency you need? What happens if a huge new supply of the commodity is found? Both cause problems in your economy. Both have happened. (The latter in the discovery of huge silver supplies in the New World by Spain. ) $\endgroup$
    – zeta-band
    Nov 13 '18 at 18:43

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Browse other questions tagged or ask your own question.