Business and Personal Finance Dictionary

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• COMMODITY-BACKED CURRENCY
  
  A currency whose value is guaranteed by the physical availability of the commodity (or service, more recently) which backs the currency. The owner of a backed currency can normally ask for delivery of the physical good or service in exchange for the currency. Backed currency (e.g.: 19th century gold standard, backed by gold; Time Dollars backed by hours of community service) is issued by whoever owns the product or service accepted as backing. There are only 3 ways of designing a currency system: fiat (i.e. without reference to anything else); valued by a commodity, when its value is expressed of terms of the value of that commodity (whether or not it is redeemable in that commodity--e.g.: Bretton Woods dollar-gold equivalence standard; airline miles); or backed by a commodity, when the currency is in fact a claim to a given quantity of that commodity (which typically requires to have a stock of that commodity on hand to meet such requests).
  
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