Money(Types Of Money)
(Types Of Money)Money is a medium of exchange in the sense that we all agree to accept it in making transactions. Merchants agree to accept money in exchange for their goods; employees agree to accept money in exchange for their labor.
Economists, however, have a language all their own when it comes to money.
They define it as something that serves as a medium of exchange, a unit of accounting, and a store of value.
Types of money:
1. Standard Money:(Types Of Money)
Standard Money is that form of money in terms of which all other forms of money in the country are measured.
It is unlimited legal tender and is subject to free coinage, i.e., anybody can bring his metal and get coins made of it. Usually it’s real or ‘intrinsic value’ is equal to its face value. It is either made of gold or silver, or sometimes both. At present, no country has such a money in Standard Money.
2. Token Money:(Types Of Money)
Token money is made of cheaper metal; it is limited legal tender; it is not subject to free coinage and its face value is greater than its intrinsic or metallic value. Token money consists of small coins. The rupee is the standard unit of money in India, but its face value is greater today than its real value. Nor is the rupee subject to free coinage. It cannot, therefore, be called standard money. It is a mixture of the standard and token money.
money can be classified as:(Types Of Money)
(i) Full Bodied money;
(ii) Representative Full bodied money; and
(iii) Credit money.
(i) Full bodied Money:(Types Of Money)
Any unit of money, whose face value and intrinsic value are equal, is known as full bodied money, i.e. Money Value = Commodity Value. For example, during the British period, one rupee coin was made of silver and its value as money was same as its value as a commodity.
(ii) Representative Full-bodied Money:(Types Of Money)
It refers to money which is usually made of paper. The value of representative full-bodied money is much higher than its value as a commodity. It is accepted as money as it can be conveniently used for carrying out transactions.
Such a type of paper money is 100% backed by metallic reserve of gold or silver and is redeemable at the option of the holder. For example, in case of convertible paper receipts, a person can exchange the amount stipulated on the paper receipt for equal value of gold.
Two Kinds of Representative Money:(Types Of Money)
A. Convertible Paper Money:(Types Of Money)
It refers to the currency notes which are freely convertible into full-bodied money (gold or silver) at any time at the option of the holder. However, 100% backing of gold or silver is not desired as all the notes in circulation are not simultaneously presented for conversion.
B. Inconvertible Paper Money:(Types Of Money)
It is that kind of paper money which cannot be convertible into full-bodied money at the option of the holder.
However, it circulates and commands value as its issue is regulated by a responsible government. This money does not have any backing of standard coins or bullion. Indian one-rupee note is a good example of inconvertible paper money.
(iii) Credit Money:(Types Of Money)
Credit money refers to the money whose intrinsic value (as a commodity) is much lower than its face value, i.e.
Money Value > Commodity Value.
For example, face value of Rs 100 note is Rs 100, but we would get a much lower value if we sell the note as a piece of paper. Credit cards, bank deposits are other examples of credit money.
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