Money: Different Types of Money and Forms of Money

Do you realise that money is used nowadays in various types and forms?

Gold and Silver, Tokens, Coins, etc. are some of the types of money that we use in our daily transactions. Similarly, Currency notes, Credit Cards, Bitcoins, etc. are examples of Money.

So, money is classified into different types and forms according to its nature. 

Difference Between Type and Form of Money

• "Type" of money refers to the underlying nature, status, and qualities that define its value.
• "Form" refers to the physical material or technological mechanism used to store and use the money.

Types of Money

Money can be broadly classified into four major types. This classification describes the abstract nature of money, as opposed to its physical forms.

1. Commodity money.
2. Representative money.
3. Fiat money.
4. Fiduciary money.

Commodity Money:

Commodity money consists of commodities with intrinsic value. 

Gold and silver are examples of commodity money in our present economy. Their face value is equal to their real value. 

In earlier times, important commodities such as rice, wheat, tobacco, seashells, pearls, and valuable stones were also treated as commodity money. 

This kind of money is characterized by the scarcity of the commodity and the value attached to it by the parties to the transaction. 

But in the present-day economy, this kind of money is not significant, even though gold and silver are used as a store of value.

Representative Money: 

Representative money is that which can be exchanged for a real commodity or for money. 

For example, tokens, documents, or certificates issued to a person can be exchanged by the holder for real items, such as gold, silver, or any goods and services. 

Coins and paper currency can be treated as representative money. It represents the quantum or degree of value borne by it. 

Gold certificates and silver certificates are also examples of representative money.

Fiat Money:
Fiat money is any money declared by governments to be legal tender. 

This money by itself has no intrinsic value. It is not backed by any physical commodity, but is declared legal tender. 

For example, paper currency. You can not reject it. You are bound to accept it as money.

Fiduciary money
Fiduciary money is a form of money based on the trust and reputation of the issuer. 

The issuer of the instrument of money, whether a government, a company, or any trustee, promises to pay a certain amount of money or value as stated on the instrument, and the beneficiary places faith and trust in it. 

Most transactions in the present-day economy are conducted through these fiduciary instruments.

Forms of Money

Some of the more popular and common forms of physical/digital money are discussed here.

Coin Money

Different forms of coins are used, such as gold, silver, copper, bronze, and nickel, each representing a value printed on them.

Paper Money or Paper Currency

This form of money constitutes the currency notes printed and issued by the government or central bank, and financial documents such as bills of exchange, promissory notes, checks, bank drafts, etc.

Bank Money or Demand Deposits Money

Bank money is the money created through deposits made by the public into their bank accounts.

Demand deposits are funds deposited into banks by customers that can be withdrawn on demand without any prior notice to the bank. 

This money is characterized by the fact that the original physical money available with the banks is multiplied into larger volumes due to the facility of the minimum reserve ratio that banks must maintain against their actual deposits. 

So, the actual money available with the bank at any time will be much less than their account book balances, as they have lent it to the public and/or businesses as short-term loans. 

The total money created in this way can be known only by calculating the money in circulation with the public and then adding to it the actual money with banks and the value of checks or drafts in hand with the public and at the bank.  

Token Money
Token money is a form of money in which the tokens, such as coins or paper currency, have no intrinsic value but represent and guarantee the value stated on them, which is reimbursable.

Full-bodied Money
Full-bodied money is the form of money where its real value equals its commodity or physical value.

Gold coins and Silver coins are examples of full-bodied money or real money. They have the same physical value as their face value depicts. 

Standard Money
Standard money refers to the form of money used by different countries or economies for their accounting purpose. 

For example, the countries mentioned below use the corresponding standard units for their circulation and accounting purposes in their economies.
U.S.     Dollar ($)
U.K.     Pound (L)
India    Rupee (Rs.)
Europe  Euro  (E )
China    Yuan or Renminbi
Japan    Yen   (Y )

Legal Tender Money  
Legal tender is the form of money that is legally acceptable. 

You cannot reject any payment made with legal tender. 

Paper currency is fully legal tender, and you should accept all payments in that form. 

Coins are not fully legal tender. Only small payments can be made with coins, and you have the right to refuse payments made using large quantities of coins.
       

Electronic Currency or Digital Money
Electronic money, also known as e-money, is a form of money that is transacted through the internet or other digital channels. 

Funds are transferred, and payments or receipts are made through internet transactions using computers and mobile phones. 

Examples of e-money include bank deposits made using e-services of banks on the internet, fund transfers made online, claims against banks and agencies resulting from e-transfers or payments, and account settlements. 

PayPal, Google Wallet, Apple Pay, RuPay, Bitcoin, etc., are among the most popular forms of this kind of money.