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Commodity Trading: An Economic View

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Commodity Trading: An Economic View
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Deepak Sahu
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Commodity Trading: An Economic View - August 22nd, 2012

ccording to Economics, Money is an economic tool, which can assume the functions of medium of exchange, units of account and reference for deferred payments and store of value. Money is one of the main topics studied in economics. But before introduction of money what people do for exchange of goods
Historically there have been many theories developed on the combination of these four functions, some of them claimed that there was a need for clarification of their best and that one unit would be insufficient to deal with them all. In this article, you will get to know about commodity trading.


For commodity money means a payment instrument represented by a well endowed with its own intrinsic value, ie, independent from its use as a means of payment. In simple terms "A commodity that is used as a medium of exchange".
The first payment instruments that allowed him to move from a system of exchange which the inefficient direct barter exchange system to a more evolved as the mediated bartering- were precisely the goods, guarentigio character, which served as "value-bridge". This allowed not only to expand the possibilities of trade than the contemporary retrieval, but also to make indirect exchanges. This "third good" was detected in specific assets, with (to varying degrees) of special features for such use:
non-perishable items (which avoids the loss of value)
the prevalence (which guarantees a widespread acceptance)
easy verification of their quality (which reduces the uncertainties related to the payment).
Even in modern economies occasionally use the means of exchange of this type (for example when, in the absence of divisional money, the seller gives the buyer the rest in the form of candy), the last time this happened on a large scale has been immediately after the Second world War, with the common use of cigarettes as a bargaining chip.

Among the assets used as a medium of exchange a remarkable spread in the past have taken the precious metals, mainly thanks to their exceptional strength compared to the passage of time, and only later, however, ran to the coining of the precious metals, or their transformation into coinage, which had an additional function as a guarantee of good value in exchange (in which case you begin to talk of narrow money).
The concept of commodity money is evidently opposed to the concept of legal tender.
It is important to emphasize that, once a product is used as money, it acquires a value that is often slightly different from its intrinsic value. The fact of being able to be used as a currency adds utility to the goods, increasing, therefore, the value. This additional utility depends on social aspects and is influenced by the use of money that you do in that particular society. Consequently, although the goods traded are real, their value is not fixed. A first example is gold, which has acquired a different value in different populations, but none has been as valued as those who have used it as money. Fluctuations in the value of a commodity exchange are very dependent on supply and demand, current and estimated: for example, the approaching exhaustion of a mine of gold means that the value increases for the next supply reduction .
Importantly, the current metal coins in circulation (together with the notes) are not commodity money: their value is a legal value (like notes), is not bound to the metal value in themselves (as was the case in the past for bullion coins).
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