Types of Money

As we have hinted, different societies have quite different money systems. The major historical types of money are

Commodity moneys

These are moneys that have value in non-monetary uses equivalent to the monetary value of the commodity. Any commodity used as a medium of exchange is commodity money. Well-known examples are gold, copper and silver metals, but sea-shells (that is, cowrie shells) tobacco, and cigarettes have all been used. Historically, copper, gold and silver coins have been the most used in European and East Asian societies.

metallic coin

An example could be gold and silver coins that have values roughly equal to the price the metal would command as jewelry.

other commodities

As we have seen, seashells have been used as money, as have tobacco and, perhaps, oxen.

Fiat money

Fiat money is a monetary standard (usually paper money) that people are required by law to accept as a medium of exchange and/or a standard of deferred payment. It is money by the "fiat" -- the command -- of the sovereign.

Fiduciary money

Whenever a bank issues credible promises to pay in some other form of money, and the promises are transferable, they can circulate as money. Bank money is also called "fiduciary money," since it is based on the trust people have that the bank will keep faith (fides) and pay as promised. Fiduciary money may be based on promises to pay in commodity money (gold coin, for example) or in fiat money. We will go into much more detail later, because modern monetary systems are largely fiduciary. Two major instances of fiduciary money are

bank notes

These are bills issued by banks. They were widely used in the nineteenth century and are still used in some countries.

checking accounts

In our society, checks are acceptable as money, so by the definition of money -- a commodity or token that serves as a medium of exchange -- checks are money, just as real as any other kind of money.

Both fiat money and fiduciary money are tokens, of course, as distinct from commodity moneys. These token moneys are much the most important kinds of money in the modern world.

Credit Cards