V. 22:3 (90-91): Websites For Traders: GoldMoney.com by Bruce R. Faber
There are two basic kinds of money: commodity-backed money and faith-based money. Commodity-backed currency can be exchanged on demand for the commodity that backs it. That commodity might be gold or silver, or it could be something of lesser, but commonly known, value, such as grain rye — hence the “rye marks” of Weimar
Germany in 1923. In order to increase the amount of a commodity-based currency, there must be an increase in that commodity. More gold and/or silver must be mined or acquired by trade, or more rye must be grown and stored, before the corresponding supply of
money can be increased.
On the other hand, faith-based money, more commonly referred to as fiat money, is simply declared to be legal tender, usually by a government entity, and it thereafter maintains its value based on the faith and credit of the government that instituted it as currency. This is a quick and easy way to create money. No commodity needs to be mined, grown, or stored. The only requirement is continuing faith in the controlling government. Such a system works very well, as long as the government keeps a tight rein on the amount of the money in circulation.