Differentiate commodity money from fiat money with examples.

• A. Commodity money has intrinsic value (e.g., gold coins); fiat money has value by government decree and trust (e.g., paper currency).
• B. Commodity money is paper currency; fiat money is metal coins.
• C. Commodity money is only used domestically; fiat money is foreign.
• D. Commodity money is backed by digital assets; fiat money is not.

Answer: (A)

Commodity money is money whose value comes from the material it’s made of. The material itself has value—think gold coins or other precious-metal coins—so part of what you’re exchanging is the intrinsic worth of the metal. Fiat money, on the other hand, has value not because of the material it’s made from but because a government declares it legal tender and people trust that others will accept it in exchange. The classic example is paper currency: its worth comes from the government’s decree and the public’s trust, not from the paper itself.

That distinction is why the correct description is that commodity money has intrinsic value (like gold coins), while fiat money’s value rests on government decree and trust (like paper currency). The other statements mix up these ideas or introduce incorrect notions—for instance, commodity money is not simply paper currency, fiat money isn’t backed by metal coins by default, and commodity money isn’t defined by digital asset backing.