Types of Money
The main functions of money are :
- It is a medium of exchange
- It gives purchasing power to consumer to pay for goods and services
- It is a unit of account
- It is a unit measure of value.
- It is a standard of deferred payment
There are several kinds of money varying in liability and strength. The society has modified the money at different times and in this way several types of money are introduced. When there was ample availability of metals, metal money came into existence later it was substituted by the paper money. At different times, several commodities were used as the medium of exchange. So, it can be said that according to the needs and availability of means, the kinds of money has changed.
There are 4 major types of money
- Commodity Money
- Fiat Money
- Fiduciary Money
- Commercial Bank Money
Whenever any commodity is used for the exchange purpose, the commodity becomes equivalent to the money and is called commodity money. There are certain types of commodity, which are used as the commodity money. Among these, there are several precious metals like gold, silver, copper and many more. Again, in many parts of the world, seashells (also known as cowrie shells), tobacco and many other items were in use as a type of money & medium of exchange.
Ex : gold coins , beads , shells, pearls, stones, tea, sugar, metal
Ex : Paper money, Coins
Commercial Bank MoneyCommercial Bank money or demand deposits are claims against financial institutions that can be used for the purchase
There are also various other types of money like the credit money, electronic money, coin and paper money, Fractional money and Repesentative money as discussed below :
Fractional MoneyIt is a hybrid type of money which is partly backed by a commodity and has a fiat money transaction purpose. If the commodity loses its value then Fractional money converts into Fiat money.
Representative MONEYIt represents a claim on commodity and it can be redeemed for that commodity at a bank . It is a token or paper money that can be exchanged for a fixed quantity of commodity. Its value depends on the commodity it backs.
CoinsMetals of particular weight are stamped into coins. There are various precious metals like gold, silver, bronze , copper whose coins are already used in human history. The mintingg of coins is controlled by the state.
Paper MoneyPaper money don't have any intrinsic value , as a fiat money it is approved by government order to be treated as legal tender through which value exchange can happen. Governments print the paper money according to the requirements which is tightly controlled as it can affect the economy of the country.
Interesting facts about various types of money :• In China cowry shells are regarded as money during 1000 B.C to 1200 B.C.
• Leather bags are treated as money in the ancient city of Carthage.
• Copper coins are treated as money by Romans 600B.C.
• Silver coins are treated as money by Ancient Persians between 600-300 B.C.
• Gold Coins are treated as money in 600 B.C in Anatolia (Asian Turkey or Asia Minor )
• Paper Money first appeared in China about 800 AD . In Europe, Sweden is the First country to issue Paper Money in 1661.
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Last Updated on : 28th May 2015