Types of money

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Types of money

Commodity money

Commercial bank money

Fiat money

Fiduciary money

Money is a medium of exchange for good and services in a form of coins, banknotes or any registered medium to be used as money. The first currency was created in 600BC by King Alyattes of Lydia. Coins evolved into bank notes in 1661AD.

Money today is used as a medium of exchange, store value, used as a unit of account and so many other uses. We are going to learn about the different types of money including:

Commodity money

Commercial bank money

Fiat money

Fiduciary money

Commodity money: This is the type of money whose value comes from a commodity of which it is made. Examples include cocoa beans, copper, gold, tea, tobacco etc. In 3000BC in Mesopotamia, shekel was used as a unit of weight of the commodity. A commodity such as salt or silk is made the unit of value and physically used as money. 

With commodity money, there is no Seigniorage as there isn't a need of printing new money to be used as a medium of exchange. Commodity money goods are not affected when the currency value of a country falls, their value remains the same. Commodity money does not affect the economic trends of money value as found with fiat systems. 

Commercial bank money: This is a portion of a currency which is made of book money debt generated by commercial banks. It is made of checking accounts, savings accounts, money market accounts and CDs provides banks with capital to make loans. 

Some of the importances of commercial bank money: Checking accounts help to save fees charged by storefronts that provide check cashing services. They help to access funds by writing checks instead of carrying money with you. Savings accounts accrue interest over time, they are insured, steadily available, the money is kept safe and an account can be opened with little money. The funds in Money institutions insured by the FDIC is refundable if the institutions collapse, they also come with benefits such as access via checks, debit cards, ATMs and online banking, money is easy to be accessed with liquidity and returns superior interest rates. 

Fiat money: Fiat money is a currency without intrinsic value that has been established as money usually by government regulation. Examples include the United States dollar from North America, Euro from Europe, pound sterling from Britain, Australian dollar from Australia etc. This money originated from Amsterdamsche Wisselbank established in 1609 during sterdams ascent as the largest and most prosperous city in Europe.

Fiat money offers convenience, it is safe, enables easier saving, bank accounts are cheap, accounts help you to access credit. etc 

Fiduciary money:This is money in circulation in the economy. This is the liquidity available tk economic factors to carry out transactions. It is backed for by trust between the payer and payee. For example, promises to pay a particular amount of gold, silver etc are made. They are initially issued by individuals or companies as banknotes or as transferable book entries which are called deposits. It should be noted that Fiat money is the same as Fiduciary money. 

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