Commodity money is to be distinguished from representative money which is a certificate or token which can be exchanged for the underlying commodity, but only as the trade is good for that source and the product. A key feature of commodity money is that the value is directly perceived by the users of this money, who recognize the utility or beauty of the tokens as they would recognize the goods themselves. That is, the effect of holding a token for a barrel of oil must be the same economically as actually having the barrel at hand. This thinking guides the modern commodity markets, although they use a sophisticated range of financial instruments that are more than one to one representations of units of a given type of commodity.

Since payment by commodity generally provides a useful good, commodity money is similar to barter, but is distinguishable from it in having a single recognized unit of exchange. (Radford 1945) described the establishment of commodity money in P.O.W camps.

People left their surplus clothing, toilet requisites and food there until they were sold at a fixed price in cigarettes. Only sales in cigarettes were accepted there was no barter … Of food, the shop carried small stocks for convenience the capital was provided by a loan from the bulk store of Red Cross cigarettes and repaid by a small commission taken on the first transactions. Thus the cigarette attained its fullest currency status, and the market was almost completely unified. 2

Radford documented the way that this ‘cigarette currency’ was subject to Gresham’s law, inflation, and especially deflation.

In another example, in U.S. prisons, after smoking was banned in about 2003, commodity money has switched in many places to cans or foil pouches of mackerel fish fillets, which have a fairly standard cost and are easy to store. These may be exchanged for many services in prisons where personal possession of currency is prohibited. 3

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Viceroy (cigarette) – wikipedia, the free encyclopedia

European parliament approves tough rules on electronic cigarettes

  1. a b c Cox, Jim (2008). Sold On Radio Advertisers in the Golden Age of Broadcasting. McFarland. p. 102 103. ISBN 0786433914.
  2. Brenner, Marie (May 1996). “The Man Who Knew Too Much”. Vanity Fair 4.
  3. Kessler, D. A. (1994). “The control and manipulation of nicotine in cigarettes”. Tobacco Control (3) 362 369.
  4. “Deposition of Jeffrey Wigand, Ph.D.”. Legacy Tobacco Documents Library. University of California, San Francisco. November 14, 1996. Retrieved November 20, 2012.
  5. Cox 2008, p. 231
  6. “Our international brands”. British American Tobacco. Retrieved November 20, 2012.