roll of american dollars tightened with red band

Greetings and welcome to this article on “What is Money”, its importance, creation and usage. Hope you enjoy it and it helps you improve your financial knowledge.

Money is anything of value that is accepted as a medium of exchange. Some hate it, some love it, some cant do without it, others do their best to do without it and so forth.

For more info about money visit our page on Money Mindset.

Let us begin!!!

Definitions of Money – What is Money

Money is any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular country or socio-economic context. Wikipedia

Money is any item or medium of exchange that is accepted by people for the payment of goods and serviceshttps://www.investopedia.com/insights/what-is-money/

Money is a commodity accepted by general consent as a medium of economic exchange.https://www.britannica.com/topic/money

money is something that holds its value over time, can be easily translated into prices, and is widely acceptedhttps://www.imf.org/external/pubs/ft/fandd/2012/09/basics.htm

Money is any object that is generally accepted as payment for goods and services and repayment of debts in a given country or socio-economic context.https://positivemoney.org/2011/05/what-is-money/

How is Money Created? – What is money

Money creation, or money issuance, is the process by which the money supply of a country, or of an economic or monetary region, is increased. In most modern economies, money creation is controlled by the central banks. Money issued by central banks is termed base money. Central banks can increase the quantity of base money directly, by engaging in open market operations. However, the majority of the money supply is created by the commercial banking system in the form of bank deposits. Bank loans issued by commercial banks that practice fractional reserve banking expands the quantity of broad money to more than the original amount of base money issued by the central bank. Wikipedia

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Types of Money – What is Money

The different types of money as classified by the economists are:

Commodity Money

Commodity money is a type of money or physical good that has an intrinsic value. It’s value comes from a commodity of which it is made. Commodity money consists of objects having value or use in themselves as well as their value in buying goods.

Examples of commodities include gold, silver, copper, salt, peppercorns, tea, decorated belts, shells, alcohol, cigarettes, silk, candy, nails, cocoa beans, cowries and barley

Fiat Money

Fiat money or fiat currency is money whose value is not derived from any intrinsic value (it  is not backed by any commodity such as gold or silver) or guarantee that it can be converted into a valuable commodity (such as gold). fiat money is backed by the economic strength of the issuing government. It derives its value from supply and demand and the stability of the government.

Fiat money generally does not have intrinsic value or use value. It has value only because the individuals who use it agree on its value.

Examples of fiat money can include:

  • Any money that is not backed by a commodity.
  • Money declared by a person, institution or government to be legal tender, meaning that it must be accepted in payment of a debt in specific circumstances.
  • State-issued money which is neither convertible through a central bank to anything else nor fixed in value in terms of any objective standard.
  • Money used because of government decree
What is Money - advancingmindset.com
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Fiduciary Money

Fiduciary money, cash or currency refers to banknotes and coins which are available in circulation in the economy. This is the liquidity available to economic actors to carry out transactions. It is a means of payment. Currency is tangible property, unlike scriptural money which is immaterial.

Coinage

Coin money is the small, flat round piece of metal or plastic used primarily as a medium of exchange or legal tender.  The coins are normlly standardized in weight, produced in large quantities at a mint in order to facilitate trade and are most often issued by a government. Coins often have images, numerals, or text on them. In most cases, the highest value coin in circulation (excluding bullion coins) is worth less than the lowest-value note

Example of coins that have been used as a meidum of exchange include gold, silver, copper, bronze

Commercial Money

Commercial bank money is the money in an economy that is created through debt when commercial banks loan out money. It is the opposite of the terms central bank money, base money and sovereign money, which denote legal tender issued by a central bank or monetary authority.

Another name for it is Bank Deposits. Demand deposits or checkbook money are funds held in demand accounts in commercial banks. These account balances are usually considered money and form the greater part of the narrowly defined money supply of a country. Simply put, these are deposits in the bank that can be withdrawn on demand, without any prior notice.

Digital Money

Digital money, or digital currency is any form or type of money or payment that exists only in electronic form and is primarily managed, stored or exchanged on digital computer systems. Digital money is not physically tangible like a note or a coin.

Examples of digital currencies include cryptocurrencies, virtual currency, stable coins and central bank digital currency.

Representative Money

Representative money is money that consists of token coins, paper money or other physical tokens such as certificates, that can be reliably exchanged for a fixed quantity of a commodity such as gold or silver. The value of representative money stands in direct and fixed relation to the commodity that backs it, while not itself being composed of that commodity.

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By Joshua

My name is Joshua and I am a Mindset Coach. Entrepreneurs hire me to help them Think Positive, Be Emotionally Intelligent and Take Smart Actions

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