What Is Money?

In simple words, money can be anything that can be used as a means of exchange for the payment of products and services. It is an alternate discovery of the bartering system in the old time.

We need money, without it the wheel of life does not work. Bread, cloth, house, education, health, luxuries of life, mobile, car, electricity, gas, everything has to be bought with money and it is very important to make money, but only money can be made by running after these luxuries.

Currency refers to something that can be bought or sold for other things. In the past, currency was made of different metals. With the invention of the computer, paper money is gradually being converted to digital currency. Every country in the world has its own currency and name.

Three Main Types of Money

1)   Commodity Money

As we defined that money can be anything, here commodity money is the physical form of money and has its intrinsic value. Having intrinsic value here means we can use the commodity money as a medium of exchange and in other forms as well, for example, Gold is commodity money and we can use gold as a medium of exchange and use for Jewelry as well. Commodity money is the oldest form of money. Commodity money is more closed to the barter system used in ancient times. Where goods were exchanged for goods.

2)   Fiat Money

Fiat money is the currency notes which the Government or state bank of any country is producing. Unlike commodity money, fiat money has no intrinsic value. Its value is the only trust which Government builds by declaring it as a legal medium of exchange.

State banks or the Government is the full controlling authority of the fiat money. It can produce as much as and when needed, therefore in fiat money there can be always the risk of high inflation.

3)   Commercial Bank Money

Commercial bank money is the debt generated by commercial banks. For every deposit of Rs.100, the bank keeps only Rs.10 to satisfied the customer’s short-term cash withdrawals, and the remaining amount of Rs.90.the bank may give loans to others, so there is a creation of assets of Rs.90 in the bank but actually, it’s not an asset it’s a debt generated by the bank.

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