Introduction: The Nature of Contemporary Money and Its Issuance System
Economists classify money into two main categories based on how it is issued: commodity money and credit money. They also argue that money possesses two inseparable forms of value. The first is use value, which comes from its practical benefits, while the second is exchange value, derived from its role in trade.
Money is considered commodity money when its use value is significant, even if it is not greater than its exchange value. In contrast, when its use value is minimal or nearly nonexistent, it is defined as credit money.
To illustrate this distinction, consider gold and silver. These are examples of commodity money for two key reasons. First, even when used as a medium of exchange—whether by weight or as minted coins such as dinars and dirhams—they remain tied to their original nature as precious metals. For instance, a gold dinar of a specific weight holds the same value as an equivalent amount of gold in bullion form. Thus, even when functioning as money, it remains a commodity.
Second, gold and silver have clear and substantial use value. They can be used to produce jewelry, decorate weapons, and serve other practical or aesthetic purposes.
The value of such money is therefore derived from two sources: its inherent use value and its widespread acceptance by society, often reinforced by government recognition. Even if authorities withdraw its status as official currency, its value does not collapse, as it continues to exist as a useful and tradable commodity.
On the other hand, paper money and fulūs (coins made from low-value metals) fall under the category of credit money. These forms of money are not backed by intrinsic value. For example, a piece of paper that resembles a dollar in size and appearance does not carry the same purchasing power. Similarly, a coin made of inexpensive metal has a value that exceeds the worth of its raw material; a lump of the same metal would not command the same value as the coin itself.
This type of money has little to no use value. Paper money, for instance, cannot be consumed or directly utilized for practical purposes such as ornamentation. Its value depends almost entirely on trust, acceptance, and the authority that issues it.
