types of money


1. Commodity Money

The commodities used as money is called commodity money. For example, people used leather, bones, tusks, etc during the hunting age, cattle during pastoral age, grains during agricultural age, etc. But they were eliminated as money because of the lack of qualities like uniformity, stability, divisibility, durability, and portability.

2. Metallic money

If the metals like gold, silver, copper, etc are used as money, it is known as metallic money or metallic standard. There are two types of metallic money:

a. Standard or full-bodied coins:

The gold or silver coins with definite weight and purity are called full-bodied coins. The face value of such money is equal to the intrinsic value which does not fall even if it is melted or divided into several pieces.

b. Token money:

The token money is made up of inferior metals like aluminum, copper, etc. The face value of token money is higher than the intrinsic value. Its value disappears when it is melted.

3. Paper money

The money made up of paper is called paper money. It is issued by the government or central bank. It is divided into five types and they are as follows:

a. Representative paper money
The paper money which is fully backed by gold and silver reserve is called representative paper money. Under the system of representative paper money, gold and silver equivalent to the value of paper money is kept by the monetary authority. This system inspires full public confidence in paper money.

b. Convertible paper money

The paper money which is convertible into standard coins at the option of the holder is called convertible paper money. The paper note issued by the monetary authority is also backed up by gold and silver reserves but also the value of these metallic reserves is less than the value of notes issued. The monetary authority also assures the public that they can get their paper notes converted into gold as per their wish.

c. Inconvertible paper money

The paper money which is not convertible into gold and silver is inconvertible paper money. Under this system, the notes issued is backed up by some reserve in the form of gold, silver, government securities, bond, treasury bills, etc.

d. Fiat paper money

Fiat paper money is also a type of inconvertible paper money. This type of money is issued generally at the time of crisis. So, it is also known as emergency currency. No reserve of any type is kept behind the fiat paper money.

e. Bank or credit money

Bank or credit money emerged due to the development of banking institutions and their credit activities. The cheques drawn as demand or current deposit of commercial bank is called bank money. The bank money can be turned into money by their depositors by means of cheques.

It is not legal tender. So, bank money is also known as optional money. In the present-day world, the other medium of exchange such as bank draft, traveler's check, bills of exchange, promissory note, credit card, debit card, etc is also counted as bank money.

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