A type of money whose value is principally derived from a commodity of which it is made. Commodity money includes items that have value or use in their own, rather than based on certain external factors.

Commodity money has intrinsic value, i.e., the value of a material that has value as such. Examples of commodity money include gold bars/ coins and silver bars/ coins. Intrinsic value represents the inherent value that a commodity possesses, that has nothing to do with its being a medium of exchange. Gold and silver (among other precious metals) have intrinsic value because of their utility or usefulness in other applications beyond its use as money. This includes uses such as in jewelry, electronics, and other industrial applications. Other examples of commodity money include salt, alcohol, tobacco, cocoa beans, and oil.

Contrary to fiat money, such as U.S. currency, which gets its value solely from the trust placed in it (and its status as a legal tender), commodity money has value due to its own physical characteristics and relative rarity. For example, gold and silver were used for thousands of years as a standard form of money, both were also used in jewelry making among others. Their value extends beyond its use an exchange medium.

At times of economic upheaval, such as hyperinflation or depression, people prefer to store value in commodity money due to their natural characteristics as a store of value that historically defied pressures of inflation and bad economic situation. Investors also resort to commodity money while diversifying away from legal tender. However, commodity money may, at times, experience deflation – a drop in general price levels, though this is an exceptional case. In such rare cases, investors hedge losses arising from deflation by holding assets such as cash, dividend-paying stocks, among others.

Commodity money has several distinguishing features (features of commodity money), mainly durability, measurability, value-storing, exchangeability and rarity or relative rarity.