What Is Money?

The Oxford definition of money is:
A current medium of exchange in the form of coins and banknotes; coins and banknotes collectively.
Payment for work; wages.
The assets, property, and resources owned by someone or something; wealth.
Everybody uses money, and as I've said before, some (including me) think of it a necessary evil.
The most obvious ‘function’ of money is simple: it makes it easy for people to buy and sell things. Money is considered essential to the workings of the modern economy.
Money is also used to help price things. When you buy something, you are often charged pounds and pennies.
The price could be listed in other units (bags of rice, pints of milk, etc) but money offers a shared standard, making it easier to compare prices.
The Four Different Types of Money:
- Commodity Money
Commodity Money is probably the oldest type of money. It builds on natural resources that act as a medium of exchange, store of value, and unit of account. This type of money originates from the bartar system, where goods and services are directly exchanged for other goods and services of the same kind. The important thing to note about commodity money is that its value is defined by the vital value of the commodity itself. In other words, the commodity itself becomes the money. Examples of commodity money include gold coins, beads, shells, spices, etc. which can be swapped.
- Fiat Money
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. Unlike commodity money, fiat money is not backed by any physical item. By definition, its essential value is significantly lower than its face value. The value of fiat money is taken from the relationship between supply and demand. In fact, most modern economies are based on a fiat money system. Examples of fiat money include coins and bills etc.
- Fiduciary Money
Fiduciary money depends for 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. Examples of fiduciary money include cheques, bank notes, or drafts.
- Commercial Bank Money
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 loans worth more than the value of the actual currency they hold. At this point just note that in essence, commercial bank money is debt generated by commercial banks that can be exchanged for “real” money or to buy goods and services.
I used this for inspiration!:
https://edu.bankofengland.co.uk/knowledgebank/what-is-money/
You could also look here to see more about the history etc.
https://en.wikipedia.org/wiki/Money
I found the above helpful!
Comments (9)
16 Nov 2018
It's great to use other websites to help and thanks for including the links. In future, we'd like all of your posts to be written in your own words. There are some seriously complicated ideas here and by explaining them yourself, we can be totally sure that you understand each of them!
19 Nov 2018
Please try and explain them yourself there are some words here which I don't even Understand but aside from that I like the post it was really Informative and showed me a lot of things I didn't know about money thank for the post.
I'm sorry that you didn't understand some things that I did, but thanks anyways!
No problem
30 Dec 2018
I really loved the information, I think I learnt more about money in the time that I read this post, than I ever have in my life. Well done!
Thank you very much for your kind words!!
16 Nov 2019
thank you for the great information, I learnt a lot about different types of money
19 Nov 2019
nice post!
06 Mar 2020
Money is a object we use to buy things
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