Did You Know That There Are Four Types Of Money In The World?

By Getrude Mathayo / Published September 17, 2021 | 10:36 am




KEY POINTS

Many items have been historically used as commodity money, including naturally scarce precious metals, conch shells, barley beads, and other things that were considered to have value. The value of commodity money comes from the commodity out of which it is made.




Money is any object that is generally accepted as payment for goods and services and repayment of debts in a given socio-economic context or country.

Money can be described as a generally accepted medium of exchange for goods and services. Virtually anything can be considered money, as long as it performs the three major functions of money.

In economics, money is simply something generally accepted as a medium of exchange for goods and services. Virtually anything can be considered money, as long as it performs what we call the three major functions of money

Many items have been historically used as commodity money, including naturally scarce precious metals, conch shells, barley beads, and other things that were considered to have value. The value of commodity money comes from the commodity out of which it is made.

  1. Commodity Money

Commodity money has been around for millennia. It builds on scarce natural resources that act as a medium of exchange, store of value, and unit of account.

Commodity money is closely related to and originates from a barter system, where goods and services are directly exchanged for other goods and services. Commodity money facilitates this process because it acts as a generally accepted medium of exchange

  1. Fiat Money

Fiat money is money whose value is not based on its inherent value but is based on an authoritative decision by the governing body. Fiat money gets its value from a government order.

That means, the government declares fiat money to be legal tender, which requires all people and firms within the country to accept it as a means of payment. If they fail to do so, they may be fined or even put in prison.

Fiat money is widely used today through the modern and even the developing worlds. These usually cover banknotes and coins. Such examples include the Euro, the US dollar, and the Great British Pound

  1. Fiduciary Money

Fiduciary money depends on its value on the confidence that it will be generally accepted as a medium of exchange. Unlike fiat money, it is not declared legal tender by the government, which means people are not required by law to accept it as a means of payment.

instead, the issuer of fiduciary money promises to exchange it back for a commodity or fiat money if requested by the bearer. As long as people are confident that this promise will not be broken, they can use fiduciary money just like regular fiat or commodity money.

  1. Commercial Bank Money

These are also known as demand deposits. It is a claim against a bank for the purchase of goods and services.

Commercial bank money can be described as claims against financial institutions that can be used to purchase goods or services. It represents the portion of a currency that is made of debt generated by commercial banks.

More specifically, commercial bank money is created through what we call fractional reserve banking. Fractional reserve banking describes a process where commercial banks give out loan’s worth more than the value of the actual currency they hold







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