Money is the primary method used to buy goods and services. The term "CURRENCY" refers to paper notes and coins used as money. According to research done by the United Nations, there are almost 180 different types of money around the world. It can take different forms, but it must meet three key criteria: it should

1. Serve as a Medium of exchange,

2. Act as a store of value, and

3. Function as a unit of account.

The oldest currency, known as the "pound", is still in use in Britain. The standardized currency is produced by the government as a monetary unit.  The RBI, the Reserve Bank of India, produces standardised currencies in India. In this article, candidates can find details about the types of money, properties, usage, locality, and differences between money, and understand hard and soft money, its history, and functions. This is an important static GK topic to prepare for bank and other government exams. Candidates can download this PDF from the link below. For any queries, kindly visit the FAQs listed below. 

Click Here to Download the Types of Money PDF

Banking Awareness Free PDF

Types of Money

The different types of money in economics that are used around the world nowadays are,

1. Commodity Money

2. Commercial Bank Money

3. Fiat Money

4. Fiduciary Money

5. Metallic Money

6. Paper Money

7. Representative Money

Static GK Free PDF

Commodity Money

Commodity money was used historically. It is linked to a barter system that directly exchanges goods and services for other goods and services. It was the easiest and oldest type of money which has a storage value. It works as a source of exchange and unit of account. Many people and governments accepted it as a medium of exchange. The actual value of the commodity itself describes the value of the commodity. It is a physical asset that has an intrinsic value eg., Gold coins, shells, beads, etc., Nowadays most governments changed from this money to fiat currencies.

Computer Awareness Bundle PDF Course

Commercial Bank Money

Fractional reserve banking created commercial bank money. This claims against the financial entities that are utilized to buy goods or services. Fractional Reserve Banking is the commercial banks provide loans which is greater than real money. If the financial institution becomes insolvent, the claim will not be fulfilled. Immediately upon the demand, banks have the legal obligation to return the funds. This type of money plays a vital role in any financial system.

Fiat Money

Fiat money’s face value is decided by the government which has more than its real value. The actual value of this type of money is worthless. It is issued across the world based on the economic strength of each government issuing the fiat money. It allows the government to conduct economic policy based on increasing or decreasing the money supply. The Federal Reserve and the treasury department of US., monitor the money supplies in the United States. This type of money has the purpose of regulating and mitigating monetary issues. This type of money is used in any kind of commodity or paper money which can also be used as a medium of exchange. The International Monetary Fund (IMF) and the World Bank serve as a watchdog all around the world for exchanging international currencies.

Fiduciary Money

Fiduciary money is commonly considered a mode of exchange known for its value of confidence. It is a substitute for money that is often given as a written statement that has an intent of payment. It is also not considered as a legal tender by the government like fiat money. For example., Bank notes, drafts, and cheques. The parties used the fiduciary money as regular fiat or commodity money after gaining the confidence that the assurance wouldn’t be broken. Because there is always risk in the exchange of fiduciary money system.

Metallic Money

Metallic money is used in both ancient as well as in current times. The money made of metals is called as metallic money. For example., Gold, silver, bronze, and nickel. The King Midas of Lydia is the one who invented the metal coin in the 8th century BC. Gold or silver is mainly used to determine the standard value of the money. The value of this money in exchanging goods is equivalent to their actual or intrinsic value. It is also categorized into full-bodied coins and token coins.

Paper Money

Paper money is found and used to replace metallic money. This is the money that was issued by the government as bank notes to exchange goods. In Europe, it was introduced in Sweden in 1661. It is acceptable which inherit the characteristics of token money without the reference to that metallic equivalent. The invention of paper money has been started in premodern China. No country in the world has a gold or silver standard currency system. In Europe and America, this type of money was held under suspicion because the printing of paper money was associated with wars (both battle and civil) and also with maintaining the army.

Representative Money

In this representative money, at a fixed rate, all token or paper notes are converted into full-bodied coins like gold, silver, etc., In 1927, this type of money was adopted in India. At that time, Rupees and coins were easily converted into gold. In 1875, British economist, William Stanley Jevons described this type of money. It is involved in direct and fixed relation to the commodity that backs it.

Properties, Usage, and Difference

The money should be fungible, durable, portable, recognizable, and stable. The fungible is the term refers to the quality that allows one thing to be exchanged. It will be less durable for future transactions. All types of money should be easy to carry and need to be of better quality. The users can easily agree to the terms of exchange. Money should be relatively stable and constant to prevent fluctuations. It is used as a unit of account, as a store value, and it should be in the standard of deferred payment. The types of money are simply differentiated by market determination and also the money issued by the government.

Hard and Soft Money

The hard money is based on a valuable commodity such as gold or silver and it's also less susceptible. The soft money is raised by the national and state parties and also the money comes from large individual and PAC contributions.

History, Functions, and Locality

The Barter method is used in ancient history which can be around 100,000 years ago. The Scientist, Herodotus, mentioned the Lydians were the first people to introduce the use of gold and silver coins. After that many cultures had been developed by commodity money. Then it was followed by the development of representative money. The bank note “Jiaozi”, was first used in China. It was first issued in Europe by Stockholms Banco in 1661. In the early 20th century, all countries adopted the gold standard. By modern money theory, fiat money is also backed by taxes. Money is used as a unit of account which is used to balance the budget and also easily shows the profit and loss. The main function of all types of money is to engage in transactions and also for future savings. Almost in most countries, the government itself encourages particular forms of money used for taxes and to find fraud. The community can change the money on a smaller scale known as currency substitution, which can be money or currency that does not have to be issued by the government. 

FAQs

Q: How many types of money are explained here?

Totally 7 types of money are explained here.

Q: Which bank issues the currency in India?

The Reserve Bank of India (RBI) issues the currency in India.

Q: How does the Barter system work?

It works basically on the direct exchange of goods or services for other goods or services.

Q: Which is the oldest money?

The “Pounds” are the oldest money used by the British which is still in use.

Q: Whether this topic useful for government exams?

Yes, this is one of the knowledgeable topics useful for government exams in India.