n the late 1940s, the Communists under Mao Zedong were defeating the government of China in a civil war. The paper currency issued by the Chinese government was losing much of its value, and most businesses refused to accept it. At the same time, there was a paper shortage in Japan. During these years, Japan was still under military occupation by the United States. Some U.S. troops in Japan realized that they could use dollars to buy up vast amounts of paper currency in China, ship it to Japan to be recycled into paper, and make a substantial profit. Under these circumstances, was the Chinese paper currency a commodity moneyLOADING... or a fiat moneyLOADING...?

Fiat money refers to currency that has intrinsic value because a government backs it up, e.g. the US dollar is backed by the US government. In this case, the Chinese government was not able to back its own currency.

Commodity money refers to currency that gets its value form the materials that make it, e.g. Chinese currency was worth its weight on paper, since it was sold as paper. Other types of commodity money were cigarettes in prisons or gold coins.