Types of money – find out what money types are there

If you are wondering if there are and if there are, what are the types of money, then this article is there for you. Money in fact is something that can be technically considered as anything that has a value however the most accepted kind of money in todays world comes in the form of coins, paper or credits.

What are money?

Are you looking for a short answer to the question of what the money is? If so then, we have this for you. Money is a commodity accepted by general consent as a medium of exchange in economy. Money is a principal measure of wealth and it circulates from person to person and from country to country.

Types of money

There are different types of money and we will talk about 5 types of them. Here goes the list of them:

• commodity money,
• fiat money,
• fiduciary money,
• commercial bank money,
• representative money.

Commodity money

Let’s start with examples of commodity money which are for example:

• gold coins,
• slver coins,
• salt,
• silk,
• copper,
• tea.

There are much more types of this type of money however those are the most common ones. Commodity money has a intrinsic value and it comes form what is made which is commodity. This kind of money are used as a medium of exchange and gain their value from the scarcity of the items. It is very important to understand that if those money are going to be destroyed they can’t be replaced. To sum it all up you should know that commodity money value comes from the commodity out of which it is made.

Fiat money

When it comes to fiat currency you should know about them that they do not have any intrinsic value and also you should be aware of this that it can’t convert into a valuable resource. Very important fact is this that this type of money has to be controlled because it may affect entire economy of a country if it is used in a wrong way. The value (the real one) is determined by the market forces of demand and supply.

Fiduciary money

We should at first mention at least two examples of those money, which are check and bank drafts.

What fiduciary money is? It is when the customer can sell the promise or also transfer it to somebody else. This kind of money is paid in gold, silver or paper money. It is also very important to know that those money are not a government-ordered legal tender.

Commercial bank money

Let’s start with this that commercial money is also known as demand deposits. By commercial bank money you should understand the portion of a currency which is made of book money. You should also be aware of this that funds in a checking account is an exaple of commercial bank money.

Representative money

This is a very well-known form of money. It is a normal paper money which in fact can be exchanged for the commodity behind it. Examples of this kind of money are credit cards and checks but the traditional examples includes gold, copper and tabacco.

Functions of money

You should also be aware of all kind of functions of money which is defined by three functions that provides with:

1. a medium of exchange as a widely accepted form of payment,
2. a unit of account,
3. store of value which means that it retains its worth with time.

Facts about money

• fiat money gives central banks and goverments as well way more control over the money supply,
• central bank created legal tender and narrow money,
• comercial bank money is created through fractional reserve banking which is a process of commercial banks giving out loanswhich are worth motr than the value of the actual currency they hold,
• commodity money is the simplest kind of money which is used in barter system,
• fiat money unlike commodity money has no intrinsic value,
• nowadays bank money is created as electronic money,
• commercial money claims against financial institutions which can be used for the purchase of goods and services as well,
• banks have a legal obligation to return funds which are held in demand deposits immediately at call, this so called demand deposit withdrawals can be done in person, by cheques or bank drafts,
• fiat money is not backed by any physical commodity,
• there are many precious metals like gold, bronze, silver or copper,
• there are other types of money like credit money, coin money, paper money or electronic money,
• fiat money has value by government order,
• intrinsic value of fiat money is significantly lower than its face value,
• cash and coins are so called physical money.

Conclusion

We all know that when money are a common measure it is easier for all of us to quote and bargain prices. You also know now that money is something generally accepted as a medium of exchange which you might have not been aware of before. We hope that the article were helpful to you and made you realise so many things when it come to money.