Types of Money throughout History

Posted by Rebekkah On March - 22 - 2012 0 Comment

Money Pile in Cash and CoinsThroughout history, many forms of money have existed. They range from precious metals to conch shells and from rice to paper currency. In all of human history, there have been a total six types of money.

The first to exist was commodity money. This included precious metals, barley, large stones and shells. This was in the early days of currency when the value actually came directly from the commodity that it was made of. In other words, a gold coin didn’t just represent a certain amount; the value of that coin was wholly represented in its physical form. These use of these items as money made this commodity money similar to bartering. The emphasis on commodity money is, once again, the fact that they physically represent their worth, therefore, it was not backed by currency store away by the government. Another form of money is referred to as representative money. This type of money consists of tokens or coins which are exchanged for a fix amount of commodity money. Basically, it is backed by commodity money. Fiat money is the most modern form of money. This type of money is not necessarily guaranteed to be backed by commodity money, but rather, has value because government order. Paper money and coins from a system like the Federal Reserve systems are the only legal form of money in this case. However, some specific coins still function as commodity money, such as the American Eagle coin. The advantage to a fiat money system is that, if damaged, that money can replaced by law in certain cases. Any lost or damaged commodity money cannot be replaced because the commodity item itself contained the value. Currency money is similar to fiat money. It is any coin or banknote recognized by the local government as a medium of exchange. This aspect of currency makes up a nation’s money supply. The part of currency is made up of bank deposits, checks, debit cards or other forms of transferable money. Modern currency only has value to the local government, therefore also making it fiat money. Due to these circumstances, the government makes it against the law to not accept fiat money as a method to pay transactions such as debits. The last form of money is commercial bank money. This type of money is generally referred to as demand deposits, which are accounts that money can be withdrawn from at any given time either by cash and cash without any advanced knowledge to a bank. These withdrawals can be done in person, by ATM or through online banking. Commercial bank money operates by only keeping a fraction of their deposits in a reserve, while lending out the rest. At the same time, they also maintain their ability to redeem withdrawals on demand. Commercial bank money is different that fiat money in that it is not tangible or physical, existing only in account legers. Also, there is a small amount of risk that the request for a withdrawal may not be given if the bank is unable to do so.

Today, there is little worry about such conditions. No matter the form the money takes, the money supply of a country is normally determined to consist of the total amount of currency currently in circulation, plus the amount of checking and saving deposits in its banks.

Comments are closed.