Types of Money and Their Characteristics
What are the types of money?
Money, money, or currencies is defined as the approved unit in facilitating economic transactions and the exchange of goods and services. Types of money in detail:
Commodity Money
Commodity money is a form of ancient money, and it means all commodities that can be used to exchange with other commodities besides their original uses; Like gold, for example, gold was used in different parts of the world as our use of current currencies, in addition to its use in the manufacture of jewelry, and other examples of it; Cocoa beans, salt, silver, tea, and wheat,[2] Among the conditions that must be met in commodities to be accepted in exchanges and deals as currency are the following:
*. High value for the commodity.
*. Durability and not easily damaged.
*. Easy to carry and store.
Fiat Money
The value of paper money was previously supported by commodity money, but its value has become based mainly on the amount of supply and demand in the markets, and it is used as one of the means of payment for obtaining goods and services, and it is the common alternative developed by China to replace the two types of money: commodity and nominal, and among its examples: the US dollar ,[4] Paper money is distinguished by its official issuance by governments, [3] Paper money is also divided into two basic types:
*. Paper currencies.
*. coins.
Fiduciary Money
This type of money depends on the amount of trust that exists between the two parties to the buying and selling process, and one of the most important examples of types of credit money are checks, [6] and in the beginnings of its appearance, it was replaced by commodity money; such as gold and silver, but it is now converted as banknotes withdrawn from the deposits of the person or the company with banks when there is a binding claim to that,[7] and the origins of the term fiduciary money go back to the Latin word (Fiducia) meaning trust.
Commercial Bank Money
Bank money expresses the bank’s non-actual money that it lends to individuals by withdrawing it from the accounts of individuals and institutions, and it is a debt recorded on it that the account holders can claim from it, and in return he can claim it from his debtors, and it can be described as written or book money, which is the term corresponding to the basic funds of banks, [9] Among the types of banking banks are the following:
*. Private bank: such as Industrial Credit and Investment Corporation Bank of India.
*. The public bank: such as: (Dena Bank) and (Corporation Bank).
*. Foreign bank: such as: (American Express Bank).
The difference lies between paper money and bank money; That paper money is the currency in circulation, while bank money represents a contract between two parties, one of whom is bound by its value.
Representative Money
Nominal or representative money is defined as money that has no intrinsic value but can be exchanged for specific items of intrinsic value; such as gold, silver, and copper,[12] and upon exchange, this money is replaced with a specific and known value by consensus of the commodity that it represents, and examples of it: paper certificates for gold and silver, [13] This method was adopted because it is the safest method than carrying the precious commodity itself and walking with it in markets.
The difference between nominal and paper money lies in the method of support to guarantee value; Paper money is supported by governments, as mentioned previously, while nominal money is supported in various approved ways. such as precious metals or credit cards.
Electronic money
Electronic money is used through specialized devices or specific programs that represent money stores, and these technological technologies work to complete payment operations for buying and selling without requiring the presence of bank accounts for its users, and among the types of electronic money are the following:
*. Hardware-based products: such as smart cards that need hardware to read them.
*. Software-based products: such as money, which can be transacted via personal devices with the Internet connected to a specific server.
Money is the approved unit in facilitating economic transactions and the exchange of goods and services. It has a specific material value and is recognized in the markets. It is also treated as a commodity. Each country has a currency and a financial system determined by its governments. It has many types, including commodity, paper, credit, and banking money. , electronic, and nominal.
What are the characteristics of money?
Money is used as a medium for the exchange process, and its most prominent characteristics are the following:
- Durability: Money is long-lived, and if it is torn or worn out, it can be easily replaced.
- Ease of Carry: Today’s money in its various forms can be carried around in the pocket without hassle.
- Fragmentation: A banknote with a high value, for example, can be exchanged for the same value from a larger number of notes of lower denominations.
- Unified: Banknotes of one value all share the exact shape and specifications.
- Limited supply: This feature contributes to preserving the actual value of money, so that its value does not decrease significantly over time.
- Acceptance: Money, especially coins, is not disputed by anyone on their acceptance, as they are internationally protected.
- Stability of value: This characteristic of strong currencies that maintains the stability of their value, and thus can always be relied upon in estimating the values ​​of various commodities, so that they are a constant reference.
- The ability to distinguish them: money can be distinguished and its value can be known by simply reading it.
Among the most important characteristics of circulated and approved money are durability, portability, divisibility, uniformity, limited supply, acceptance, stability of value, and the ability to distinguish it by all.
What are the functions of money?
Among the most important functions that made money of great importance are the following:
Money retains material value in a better way than other material things; It can also be stored for a long time.
Money is the basic unit of economic transactions and a way to determine the values ​​of various commodities.
Money is the most important means of payment for exchange, it is given in exchange for something.
The information provided in the previous article is educational information only, and should not be misunderstood as professional or financial advice. In general, all types of money refer to methods that people have developed over the ages to facilitate payment methods in order to obtain necessary goods. The advantages and disadvantages of types of money vary, each type has its own characteristics. In addition, man has been using money for at least 3000 years, and thus all types are considered the product of the natural development of human life, which included all aspects of his life. Therefore, there are several stages to making money, especially the circulating paper, which has developed throughout history.