Types of Money

Money is understood as all that good or common means of exchange within a society, and that people accept, to use as a means of payment, for the exchange of merchandise, services and goods, as well as the payment of any debt. contracted. It can be in cash (coins), bills, checks, or other forms such as electronic money.

This money may or may not be backed by some “tangible” asset of a “base” value (formerly gold and silver were the “backing” of the money issued by a country). Currently, the monetary system that exists in theory is that of fiduciary money, which does not have a “tangible” backing, but is based on the trust placed in the entity that sends it.

It should be noted that currently, circulating money belongs to the so-called “fiat money”, which in simple terms, can be said to “exist by decree”, and that it is not remittable as it used to be (for example, for silver or gold), just as it does not have any backing, and its issuance is carried out by mandate of the governing financial authority, which can be a government, or as in the case of the US federal reserve, which is a private entity, that is to say , a private bank that issues circulating money.

Money arises in ancient times, as a more effective means of exchange than barter, using as such, various means of payment, which were given an economic value with which they were based, for the exchange of merchandise, for For example, various sea shells, amber, ivory, beads, precious and semi-precious stones, pieces of metal, salt, spices, and even seeds (such as cocoa in Mesoamerica), that is, they were used as “money”, various objects that were considered valuable, they were divisible and generally scarce or highly appreciated in the region, exchanging them for the products they needed, making trade more efficient than with the old barter system (exchange of merchandise for merchandise).

It is then that money emerges as a necessity for efficient commercial exchange, deriving from the technological changes of the Neolithic, entering what we know as protohistory and history, as the use of metals and their dissemination throughout the world emerged. These materials begin to take on a commercial value and a value by itself, especially metals such as gold and silver), being that around the year seven hundred before Christ, in ancient Lydia, the “metallic” currency itself arises. , for use in commercial exchanges.

In this regard, it should be noted that recent archaeological research has shown the possibility that the use of (metallic) coins as such may have arisen earlier in the Far East, since Chinese coins (from the Mesolithic period) have been discovered, as well like some metallic seals in the territory of India, which could be used as current currency, in times before the appearance of the currency in Lydia.

money in banknotes

The various types of money can be classified, either by the material that constitutes them (metallic coins, paper or “plastic” bills, various materials or things that were used as such), or by being legal tender, by being “cash”, electronic or other money.

Types of money according to materials used:

Various objects.- For centuries, various cultures used shells, precious stones, amber, metal pieces, salt, spices or seeds such as cocoa as money for the exchange of goods.

Stone money.- In some ancient cultures of the Pacific Ocean, coins made of stone were used to symbolize the wealth possessed and to trade, having various sizes, from very small to large stones.

Metallic money.- It is the one that has been used the most by various peoples, making coins of metals such as copper, gold, silver, iron, and even aluminum. Although its use declined with the invention of paper bills, checks and recently with electronic money, it is still used, especially in (monetary), local or small transactions.

Metallic money or coins continue to be used to this day.

It is emphasized that the use of coins as current money is only those coins that comply with having been legally issued and are in current use, that is, coins (old or ancient, even if they have precious metals), cannot circulate as legal money within a country, for carrying out economic transactions.

Paper money or paper money.- Paper money or paper money is money printed on paper. The first banknotes were made in China in the seventh century of our era, and from there it spread to Europe and the rest of the world, currently being one of the most used forms of money.

It is emphasized that originally paper money represented a certain amount, payable (“by the bank” or the entity that issued it), for an amount in gold or silver, which was the backing of said bill, but currently paper money or ticket, do not have a backing as such, but is based on trust or faith, of the community in which it circulates, belonging to the so-called fiduciary money, of legal circulation within the countries, and that is issued by an entity (generally the central bank of the country, or as in the case of the USA, by the federal reserve, which is a private banking entity).

Within the classification of paper money, promissory notes can be classified, which are documents in which a person or company commits to the payment of a certain amount, that is, they are paper titles, which commit to the payment of a certain amount. .

wad of bills

Electronic money.- Electronic money is understood as money that is used to carry out transactions (payments, purchases, etc.) electronically. It is money that may well be deposited in cash in a bank and later used in an “electronic” way, through the use of cards, or internet services, taking the form of “quantity data”, to be able to be used in the network, for transactions such as payment of services and purchase of products, being “virtually” on the network (through the services provided by companies specialized in this type of electronic transactions, such as PayPal, Payza and others, as well as electronic transfers provided by banks themselves.

Another way in which so-called electronic money is used is through the use of means such as debit cards, credit cards or prepaid cards (internet, telephony, etc.), which are “read” by electronic scanners, which record the transfer orders of “electronic money” from one account to another.

Other classifications of money:

Legal tender money.- Refers to money (bills, coins), which have legal tender within a country, and is issued by the central bank of the country, (and used for the purchase and payment of products and services within a country). the borders of the country.

mexico money

Bank money.- Bank money is understood as loans, deposits and savings, as well as money movements, which are carried out through the internal mechanisms of banks, for example the so-called savings deposits, demand deposits or time deposits.

Fiduciary money.- It is the one that is put into circulation by the governing entity, and that its base is the trust that is deposited by the community, in the entity that sends the same money.

Currency money.- Currency money are the different currencies of other countries, which are taken as a kind of base or backing of the currency itself (by governments and national financial entities), and are traded by financial entities or banks, as prices fluctuate in terms of supply and demand for some of them. This money can also be used (for example, for investments), by individuals, buying with national money (legal tender), or, where appropriate, exchanging them for precious metals, for example to banks.

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