Economics 12 Notes
Economics 12 Notes

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Types of money

There are different types of money. In the ancient time, the goods of primary importance were used as money in different societies. Money made up of metal, clay, baked leather, hard rocks etc were used but the different types of money can be classified into mainly 4 types. They are

  1. Commodity money The different types of goods durable in nature were commodity money used in ancient times. In the ancient India cow was used as money, in the seashore side fishing hooks and the shells were used as money. Among the hunting commodities, the bows and arrows were used as money. These types of commodity money lacked uniformity and were not usable in all societies. They had more or less importance in different communities. There was difficulty in store measurement of value and transfer from one place to another place.
  2. Metallic money Money made up of metals is called metallic money. It was introduced to overcome the problems in the use of commodity money. The coins were supposed minted in the temple of Goddess Juno. That's why the coins were known as money. There are two types of metallic money. They are:
    • Standard metallic money: It is metallic money made up of pure and superior metals like gold and silver. This type of metallic money has the face value just equal to the intrinsic value. The value inscribed in the coins is called face value of money. The value of metal used to mint the coin is called intrinsic value.
    • Token money: It is metallic money made up of impure and inferior metals. This type of metallic money has the face value greater than the intrinsic value. Since, the prices of metals change with the time; the standard metallic money is not proper type of money. Moreover, there is need of large quantity of superior and pure metals to mint the large amount of coins. The metallic money is uniform and durable in nature. It is difficult to carry in large amount,. There Is also problem of scarcity of metals to mint the coins.
  3. Paper money It is made up of paper. It is legally tendered. It is issued by monetary authority or central bank of the nation against the reserve of gold. The value of gold kept reserve may be equal to or less than the amount of money issued. It is main type of legally tendered money used in every country. It is lighter less costly to print and safe type of money. But if it is lost, theft or caught fire then owner of the money suffers loss. However, it is easy to carry. There are two types of paper money. They are
    • Representative paper money: It is the paper money issued against the reserve of gold equal to the paper money issued. It represents gold kept as security of money issued. It is convertible to gold at any time. It is also called convertible paper money.
    • Flat paper money: It is the paper money issued against the reserve of gold of value less than the amount paper money issued. It is not convertible to gold at any time. It is also called non-convertible paper money The face value of paper money is far greater than intrinsic value. Its intrinsic value is infinitely small.
  4. Bank money: It is short term credit instruments issued by banks. They can be cheques, travel cheques, bills of exchange, letter of credit, promissory notes, overdrafts, debit/credit/ATM cards and so on. They are issued for 1 or less than 1 year. They are called liquid assets. They are discounted within one year, before the time of maturation. Most of the bank money are usable only if there are electronic devices.

Others:Besides the 4 types of money there were money made up of baked clay, leather, plastic and so on used in ancient time.

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