What is the Concept of Money?

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How does money play a role as the medium of exchange? We use the money to buy goods and services with its physical existence if we use traditional money. On the other hand, digital money does not have a physical presence. Each country’s economy relies on money to make payments in different contexts, including debt.

Money is initiated as a commodity and has different forms, but the basic system is fiat money.

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Purpose of Money Creation

In the initiated phase, money was created for a different reason. Still, its use in other areas increased, and it started to serve in multiple places. However, many economists believe that It was first developed for trading purposes.

Most money creation theories explain that counties should significantly develop smart monetary policies. If money creation is up to the requirements of the fractional reserve system, it can stabilize the economy.

Origin of Money 

At first, money was introduced with the concept of a barter system 100,000 years ago. It had massive implementation in non-monetary societies. As the years passed, societies developed Shell cash in cowry in America, Asia, Africa, and other countries. Later on, they introduced gold and silver coin.

After years passed, a new commodity, money, emerged. After years, it evolved into representative money. During the Song Dynasty in China, banknotes and paper money was introduced. In 1661, it was the first time that authorities issued banknotes.

Forms of Money

1. Commodity Money

You would have an idea about what includes commodity money? It includes conch, valuable metals, barley, shells, etc. Further examples of commodities are gold, silver, rice, copper, salt, large stones, alcohol, cigarettes, candy, cannabis, etc.

However, the swap has some resemblances to commodity money and utilizes an automatic and simple unit of account.

2. Representative Money

The second form of money is representative money, explained by British economist William Stanley Jevons in 1875. It is in token coins that may include paper money or other tokens with physical existence like certificates.

What is the Concept of Money

3. Fiat Currency

It is another form of money that can be converted into a valuable commodity like gold and silver. It has a direct association with government fiat, and it has physical existence in the form of coins or paper.

In many cases, it is better than commodity money and representative money. However, it is susceptible in many situations, like being damaged or destroyed. Still, it is possible to recover this type of money damage. On the contrary, commodity money has no chance to recover back.

4. Coinage

With time, technology evolved and introduced new forms of money like metals. It included silver and gold. Later on, bronze coins were also in use, and now copper coins are the most common forms.

It is important to note that larger economies use gold, silver, and copper coinage for different purposes. Mostly, they use gold coins for large purchases like in the military, for banking activities, etc.

In addition, they use silver coins for midsized transactions like paying taxes, contracts, and featly. In comparison, copper coins have common use for purchasing ordinary goods in a reasonable price range.

5. Paper

After years of using the coinage system, paper money was introduced in pre-modern China. It is available in the form of each country’s official paper currency. You can purchase goods and services by the transaction of this paper money. Each government’s central bank has regulated authority to conduct its monetary policy transactions.

6. Digital or Electronic

Finally, in the 20th century, advanced technology introduced money on the digital platform. According to statistical figures, in 1990, the central and commercial banks started to use money exchange in electronic form. In addition, most money came in digital currency by 2000.

After some years, 60-70% of transactions took place in an electronic database. At present, most of the transactions take place online form. These electronic ways have even provided more ease to business owners and ordinary people.

Conclusion

Overall, the concept of money is a broad term, and one can define it shortly. It has multiple types and forms. The above-explained forms and history would provide you with information about the concept of money.