What are the 4 types of money?

30 Sep 2022 By PAYCEC

Money is far more than a stack of number printed papers. In economics, it is a means of exchanging goods and services. In this day and age, with the technological advancement we have at our disposal, there are 4 types of money, each with distinctive characteristics:

  • Commodity money

It is an object that consumers use to exchange for what they want. Gold, for example, was used not only as money but also in jewelry manufacturing. So it had value outside its use as a medium of exchange, which is defined as “intrinsic value” in macroeconomics.

  • Fiat money

It is the currency that is legally issued, regulated, and recognized by a country's government. The value of fiat currency comes from the relationship between supply and demand and the stability of the issuing government.

Most modern banknotes, including the Dollar, Pound, and Euro, are examples of fiat money.

  • Fiduciary money

Fiduciary money is used when a bank promises to pay its customers in various currencies and the customer sells or transfers the promise to another party. Fiduciary money is typically paid in a commodity like gold or silver.

  • Commercial bank money

It is defined as a currency that is made up of commercial bank debt. Commercial bank money is primarily made up of deposit balances, which can be transferred either manually or electronically.

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