Types of Money

10 Key excerpts on "Types of Money"

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  Criminalization of Politics

  • Marko Nikoli?, Marko Nikolić(Authors)
  • 2020(Publication Date)
  • Society Publishing

    (Publisher)

  It functions as a unit of account, providing a common standard for measuring relative worth of goods and services being exchanged. Knowing the worth of price for goods and services. It enables both the purchaser and supplier of the good to make choices about how much of the good to purchase and how much of the good to supply. 2.5. THE DIFFERENT Types of Money IN AN ECON-OMY 2.5.1. Commodity Money Commodity money has been used for thousands of years. Commodity Criminalization of Politics 36 money is a commodity that has value even if it is not being used as money. (It is usually stated as intrinsic value.) At the time of economic turmoil, it is believed that people sometimes prefer to commodity money rather than the money authorized by their governments. Gold is believed to be a perfect example of commodity money considering they assert that gold has intrinsic value apart from its monetary properties. While it is worth noting that gold does have some uses. In most cities, gold is used for making jewelry and money rather than for making non-ornamental items. 2.5.2. Commodity-Backed Money Commodity-backed money has a slight variation from commodity money. While commodity money is money whose commodity value comes from a commodity itself as currency directly, and commodity-backed money is backed with a commodity. In other words, money can be traded in with a request. The gold standard is considered as the best example of the use of commodity-backed money. In the gold standard, people do not carry around gold as cash instead of trading gold directly for goods and services. However, the system worked in such a way that the currency holders could trade for a specified amount of gold in their currency. 2.5.3. Fiat Money Fiat money is money with no intrinsic value. However, it has value as money because the government announced that it has value for that purpose. Even after being proclaimed as legal tender, the country need not hold its worth in commodity.

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  Sovereign Money

  Beyond Reserve Banking

  • Joseph Huber(Author)
  • 2016(Publication Date)
  • Palgrave Macmillan

    (Publisher)

  The value of money is as certain or uncertain as is the value of income and capital generated through the uses of circulating money. Money, as a means of payment, was never actually a functional store of value. Money is a means of circulation, in making payments, transferring income, or building capital, and in these functions a way of making the economic world go around, not something for hoarding in Uncle Scrooge’s treasure bunker. Traditional hoards of coin and bullion were dysfunctional because they deprived the economy of much-needed purchasing power. In modern times, too, holding large amounts of inactive money (cash or depos- its) is dysfunctional for basically the same reason and also because inflation, even if low, reduces the purchasing power of the money. 2.2 Types and Creators of Money In the present day, three Types of Money are used—coins, paper money (banknotes) and money on account (bankmoney). Another type of money, tally sticks from the middle ages, fell into disuse as the historical transition 10 Sovereign Money from traditional to modern economies advanced. Digital cash, as a possible future type of money, is currently often seen as a modern substitute for solid coins and notes. Something like this might come about with blockchain tech- nology in future applications. For the time being, what is called electronic cash is not yet a means of payment in its own right, but always represents an amount of money on account. What about complementary currencies operating, for example, on ‘time dollars’, ‘nursing hours’, and local monies in parallel to official money? These are in fact used as means of payment, but cannot be seen as official money. So far, they have been of limited use, for example, as emergency money in times of crisis, or as a tool for the revitalization of depressed neighborhoods, or for the joy of social experimentation. In any case, complementary currencies rep- resent special-community or special-purpose monies.

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  Monetary Economics

  Theories, Evidence and Policy

  • David G. Pierce, Peter J. Tysome(Authors)
  • 2014(Publication Date)
  • Butterworth-Heinemann

    (Publisher)

  The functions, advantages and defínitions of money The major part of this book is concerned with the role of money in the workings of the macroeconomy, i.e. the relationships that are thought to exist between the stock of money and such macroeconomic variables as the level of, and rates of change of, unemployment, interest rates and prices. As a prehminary to these matters, this first chapter will consider the very basic issues of what money is and why we have it at all. We begin by setting out the traditional functions of money. We then look at the nature of a monetary economy and the advantages to be derived from using money. Next we consider some of the various theoretical and empirical definitions of money which have been suggested by economists, and look at the problems involved in trying to enumerate all those assets which are embraced by the definitions. Finally, we set out the official definitions of money that are employed in the United Kingdom. The functions of money The word 'money', as used in economics, has two quite distinct meanings. Firstly, it has an abstract meaning in that it is the unit of account or the measure of exchange value. This simply means that money is a sort of common denominator, in terms of which the exchange value of all other goods and services can be expressed. Money in this sense is simply a unit of measurement, denoting the value in exchange of all goods and services, just as, for example, metres denote length, ohms give electrical resistance, and degrees centigrade give temperature. The use of a unit of account greatly reduces the number of exchange ratios between goods and services. With η commodities, one of which is acting as a unit of account, there will need to be only n-l rates of exchange. Without a unit of account, however, there will be V2n{n-) separate rates of exchange.

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  Money and Calculation

  Economic and Sociological Perspectives

  • M. Amato, L. Doria, L. Fantacci, M. Amato, L. Doria, L. Fantacci(Authors)
  • 2010(Publication Date)
  • Palgrave Macmillan

    (Publisher)

  The starting point in popular debate is that money must be understood as fiat money, in which the money thing lacks value (‘it is only paper’, for example). Accordingly, the materiality of money is seen as a non-question, or one of mere historical interest. Starting with fiat money and functionalist definitions of money also sets up some restrictive agendas. There are three complementary restrictions. First, there is the question of whether, for something to fulfil the cri- teria of ‘money’, it must perform all four functional roles, or just some roles, and in the latter case, which one/s is/are privileged. With minor exceptions, state money is privileged as unit of account and the means of exchange. But is a virtual state-money monopoly over the unit of account and the role of means of exchange sufficient to exclude other forms from being ‘money’? Conversely, on an international scale, each nation-state’s money is not a recognized unit of account or means of exchange: Japanese yen, for example, cannot generally be used in shops in the United Kingdom. By contrast, it could be said that in this con- text, some derivative products which have expression in multiple cur- rencies are more liquid than cash! The problem can be posed simply: are the four functions of money a definition of money, or an ideal type of money’s roles, from which particular monies will vary: and if the latter, we need a concept not of money with an absolute definition, but of ‘moneyness’ or liquidity, where the benchmark of liquidity is not closeness to cash (one particu- lar form of money) but readiness of convertibility to another, preferred form of money. In other words, liquidity is always context-specific so moneyness can be expected to be constantly evolving. Time and Place: Foundations of Commodity Money 105 We see recognition of this point in two developments in mon- etary policy.

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  Anthropology and Economy

  • Stephen Gudeman(Author)
  • 2016(Publication Date)
  • Cambridge University Press

    (Publisher)

  With intensifying competition, more frequent exchanges, and greater specialization, the uses and forms of money proliferate and reach further into the corners of material life. Today, money uses have multiplied from cash to credit cards, to repos (repurchase agreements of very liquid securities), to the purchase and sale of tools for management of this tool. Measure, means, and end Money is an instrument for exchange and an end of trade. It provides a broad or narrow measuring rod, and it can be used to compare different amounts of the same thing or to compare different things. Not all measuring rods, such as a thermometer or a yardstick, are monies. A measuring rod serves as money when one of its units can substitute for or stand in place of what it measures. These two money functions, as unit of account and as replacement, especially the second, depend on accords of acceptance. The acceptabil- ity of the replacement is usually conventional. In many cultures narra- tives explain that money is part of the community, because it represents Measure, means, and end 149 the ancestors, spirits, fertility, gods, or the nation. This tool for calcula- tion is anchored by figurative reason. In high market economies, money has been a commodity, as in the cases of gold, silver, and salt, or pegged to the value of a commodity, as in the case of the gold standard that was used for the dollar. Commodity money is desired for itself. Today, most high market currencies are fiat monies that are issued and backed by a state or a supranational entity as in the case of the dollar and the euro. The value of fiat money floats with exchange rates, government intervention, and other market condi- tions. Whether backed by a commodity or by a state, high market money depends on belief in its sovereignty. Money as a measuring rod and as replacement is part of the story, because the range of its substitutions varies between and within economies.

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  Money, Markets and Capital

  • Jean Cartelier(Author)
  • 2018(Publication Date)
  • Routledge

    (Publisher)

  Specific to money, it will allow us to distinguish between, say, gold, which is a commodity, and legal coins, which are not a commodity. Legal coins, not gold, are an intermediary of exchange. Coinage and melting are the two operations through which money respectively enters and leaves the mar-ket, whereas gold, as a durable commodity, remains there as every other durable commodity. Coinage and coin melting are subject to non-market regulations. In a credit money system, we may distinguish between inside money, privately issued by commercial banks, and outside money, issued by a monetary authority according to non-market criteria. Outside money issuance is, amongst others, a mode of validation of inside money issued by the banks (the convertibility of bank money into proper money). Here also, sovereignty pervades the entire minting process. 2 The quantity of the non-commodity called money is not expressed in physical units as are commodities but in a specific unit, the nominal unit of account. The name of money (euro, dollar, etc.) is a prerogative of the State or of the Sovereign at large (think of the euro). Here again it would not make sense to deny the role of an institutional authority. The editing (and re-editing) of the “dictionary”, Keynes reminds us, is a right of the sovereign. 8 74 Money in value theory The attempt at a generalizing academic theory leads us to reject the image of money viewed as a special commodity. Far from being a commodity, money is an institution , that is, a set of rules not reducible to a private agreement between individuals (equilibrium) as the so-called “micro-foundation of money” tends to make us believe. But, with a presupposed set of rules, it is no longer possible to take for granted the usual definition of economic agents. Individuals can-not be described uniquely as points (endowments) or functions (preferences) defined in the commodity space.

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  Money and the Global Economy

  • Alexander Reed(Author)
  • 1998(Publication Date)
  • Woodhead Publishing

    (Publisher)

  This is not technical jargon. Effective money and quasi money are merely identity tags used throughout this book. Money is constant in essence, changing only in form. Understanding its past clarifies the present and indicates the future. Early history introduced two kinds of effective money. The first was money in the form of physical objects like furs, stone hatchets and metal bars and the second, orders representing obligations of people or businesses for goods or services received, as seen in clay or slate tablet receipts, issued in cuneiform writing by merchants, metalsmiths or temples, of no intrinsic value. The monetary world has changed little since those days, and the effective money supply of all nations today is composed of the same two elements: 1 Physical objects, principally government issued coins and paper currency. 2 Obligations of financial institutions which in most countries are bank demand account balances due to their depositors. Since coins, paper currencies and bank accounts are promises of governments and banks, commentators often point out that money is the promises people live by. Physical money Money in physical form has had a long and fairly obvious history, starting with objects acquired or created by people beyond their immediate needs for food, shelter and clothing which they bartered for corresponding materials - deer skins, barley and mud bricks. Some 4 WHAT MONEY IS of the objects circulated as primitive money - seashells, stone knives and coconuts - but these were slowly replaced by durable metal objects which, for easy identification, evolved into stamped pieces and finally coins. Because of the wide variety of these pieces and later paper cash notes, creating public confusion and abuses, nearly all govern-ments took a monopoly on their issuance, reinforced by the require-ment that the state's money be accepted when offered (tendered) in satisfaction of debts.

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  Money, Income and Time

  A Quantum-Theoretical Approach

  • Alvaro Cencini(Author)
  • 2013(Publication Date)
  • Bloomsbury Academic

    (Publisher)

  As a matter of fact, his own definition of a money economy is based on the explicit assumption that money is a commodity with the specific characteristic of being directly tradable with all other commodities in the economy. Thus, according to Glower, 'a money economy is one in which not all commodities are money' (p. 207). In contrast with this monetary world, a barter economy is defined as a state in which any commodi ty can be offered directly in exchange for every commodity. In his own words, 'a barter economy is one in which all commodities are money commodities' (p. 206). The claim that 'the peculiar feature of a money economy is that some commodities (in the present context, all but one) are denied a role as potential or actual means of payment' (p. 207) does not seem to be suffi-cient to define a true money economy. In reality it could easily be argued that the two definitions proposed by Glower do not funda-mentally differ. 116 Appraisal of Traditional Monetary Analysis The fact that money is still considered as a commodity is significant, and underlines the essential similarity between barter and a money economy defined in Glower's terms. In both models prices are relative and the role of money is mainly subsidiary. If the task of money were only to facilitate exchanges, then, obviously, any commodity fulfilling certain particular physical requirements could be used as money, and this could happen independently of the existence of any monetary institution. As the reader can easily ascertain, this is the situation which prevails in most of the so-called primitive barter economies. Thus the use of a particular commodity to facilitate exchange is not a sufficient condition for the appearance of a money economy. Let us note also that the problem remains essentially unchanged when money is defined as a good having zero transaction costs (Niehans 1971) or as an extra commodity not subject to the 'double coincidence of wants' (Starr 1972).

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  Paper Money Collapse

  The Folly of Elastic Money

  • Detlev S. Schlichter(Author)
  • 2014(Publication Date)
  • Wiley

    (Publisher)

  The skeptical reader may at this point still raise the following objections: First, the case is built on money’s function as the medium of exchange, but standard economic textbooks also ascribe other functions to money, such as a store of value or a unit for accounting and monetary calculation. Second, the changes in money’s purchasing power that result from changes in money demand could be disruptive, as they may impair money’s role as a basis for economic calculation. Maybe it is better to adjust the money supply in response to changes in money demand than to allow money’s price to change. This would make sure that money is a reliable tool for economic calculation. Third, if money production is not needed, how can we account for the growth in banking, which for a long time has included the issuance of money substitutes and fiduciary media, the latter meaning uncovered claims to money proper that are used by the public just like money, for example, demand deposits. How can we account for the fact that the world has moved away from commodity money of fixed supply to paper money of perfectly flexible supply?

  These are all good and valid questions. We will address each one of them in detail in the course of our investigation. At this juncture it may just be sufficient to make the following points.

  All additional functions that can be assigned to money are the result of money being the accepted medium of exchange. These functions, important as they are, are derivatives of the medium-of-exchange function. Because money is the medium of exchange and every good or service is traded against money, money prices are ideal for economic calculation. As to money being a vehicle for storing wealth, it is apparent that many other assets can be used for that purpose, too. Many of these have the additional attraction of potentially generating returns over time. Money does not offer any returns. It can therefore compete with other potential storages of wealth only by offering something special, and that is its universal acceptance in exchange for goods and services, its unique marketability, the ability to be exchanged for goods and services faster and more conveniently than any other asset. That, after all, is why it is money. So we are again back to the medium-of-exchange function of the monetary asset.

  Certain financial assets, in particular high-quality debt claims that are traded in very liquid markets, can sometimes become “near-monies,” and their owners may thus feel a reduced need to hold money proper. But these assets are fundamentally different in that they constitute simultaneously somebody else’s liability and therefore always carry an additional risk. Proper commodity money, such as gold, but also fiat money in the form of irredeemable paper tickets, is a financial asset that is not somebody else’s liability at the same time. The purchasing power of this money varies only with changes in the demand for money and, in the case of paper money, also with changes in its inherently flexible supply. We see here that the inflexibility of supply in the case of commodity money makes it a superior store of value.

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  The Value of Money

  • Prabhat Patnaik(Author)
  • 2009(Publication Date)
  • Columbia University Press

    (Publisher)

  But this is a purely formal point. The basic issue is that the considerations hitherto emphasized in our discussion of the value of money are no longer suffi cient when we talk about a capitalist world economy. For instance, among the many currencies in the capitalist world economy, there is usually one that acts as the principal unit of account, as the principal medium of cir-culation and as the principal form of wealth holding, thus fulfilling the role of world money. The substantive questions that arise are: Which particular currency plays this role? What enables it to play this role? How is the value of “world money” with respect to the world of commodities determined? How are the relative prices between the different currencies determined? How are these relative prices between the different currencies preserved? Why does one particular currency playing this role yield its place to another? What are the contradictions arising out of this peculiar nature of “world money” where it is both money of the world as well as the currency of a par-ticular nation? And so on. We will not be able to answer all these questions, and we must confine ourselves instead primarily to developing an approach to the study of world money. A capitalist economy, we saw, needs to hold its wealth, to a greater or lesser extent, in the form of money. Indeed, there would not even be any transaction demand for money, unless money was also a form of holding wealth. This is because any separation of purchase and sale, which the transaction demand for money presupposes, implies that there is a certain transitional period when wealth is held in the form of money, a fact underscored by Marx’s concept of “money capital” into which “commodity capi-tal” is transformed, and which in turn is transformed to “commodity capital.”

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