Money is essentially any item or verifiable record that is generally accepted as payment for goods and services and can be used for repayment of debts in a particular country or socio-economic context. Money serves mainly as a medium of exchange; a unit of account; a store of value; and, sometimes, a standard of deferred payment. In modern times, widely accepted money systems are nearly all based on fiat money. Fiat money, like any check or note of debt, is without much useable value as a physical commodity, but rather represents a governmental promise (and approval) of value. It derives its value by being declared by a government to be legal tender; that is, it must be accepted as a form of payment within the boundaries of the country for all public and private debts. Ironically, this money is sometimes printed by central banks, which loan the money to the government, at interest.

Commodity Money
Several kinds of money vary in liability and strength. Commodity money is used in barter systems where valuable resources fulfill the functions of money. The value of this kind of money comes from the value of the resources (commodities) themselves. It is only limited by the scarcity of the resources. The value of this kind of money involves the parties associated with the exchange process. This money has intrinsic value in of itself. There are certain types of commodities which are used, among these are several precious metals like gold, silver, copper, and much more, as well as agricultural goods, raw materials, finished products, livestock, etc. In many parts of the world, seashells such as cowrie shells, tobacco, and many other items were in use as a type of money and mediums of exchange – even stones, such as gems and rai stones.

Fiat Money
Fiat currency is the kind of money which does not have any intrinsic value and mostly cannot be equally exchanged into a valuable resource via government facilities. The value of fiat money is determined by government order which makes it a legal instrument for all transaction purposes. The fiat money is tightly controlled as it affects the entire economy of a country. Today Fiat money is the basis of most modern money systems. The real value of fiat money is determined by the market forces of supply and demand. Most paper money and coins in circulation today are examples of fiat money. Fiat money has a historical trend to lose value over time and eventually crash, bringing the economy down with it.

Fiduciary Money
Fiduciary money is where a bank makes a promise and assures their customers to pay or transfer value to somebody else. Fiduciary money is generally paid in gold, silver, or paper money. There are also checks and bank notes, which are examples of fiduciary money because both are some kind of token which is used as money and carry the same value.

Commercial Bank Money
Commercial Bank money or demand deposits are claims against financial institutions that can be used for the purchase of goods and services. A demand deposit account is an account from which funds can be withdrawn at any time by checks or cash withdrawal without giving the bank or financial institution any prior notice. Banks have the legal obligation to return funds held in demand deposits immediately upon demand. Demand deposit withdrawals can be performed in person, via cheques, or bank drafts, using ATMs, or through

online banking.Notwithstanding, there are other various types of money like credit money, electronic money, coin and paper money, Fractional money, and Representative money.

A Short History of Money

Historically, money can be traced back to the use of barter. Non-monetary societies operated largely along the principles of the gift economy and debt where barter usually occurred between either complete strangers or even potential enemies.

As early as 3000 BC, the Mesopotamia circa had started using commodity money. The Mesopotamian shekel was a unit of weight, and relied on the mass of something like 160 grains of barley. Some societies in the Americas, Asia, Africa, and Australia used cowry shells. Around 650–600 BC, the Lydians introduced the use of gold and silver coins. They also stamped and minted the coins.

By the early 16th century Portuguese were participating in the slave trade for bearers to carry manillas to Africa’s interior, and gradually manillas became the principal money of this trade. The price of a slave, expressed in manillas, varied considerably according to time, place, and the specific type of manilla offered. They also shipped enslaved African people to Spain and Portugal and to their islands in the Atlantic where they traded the slaves for gold, spices, and dyes. Earlier than that, Muhammad & his followers owned and traded African and Arab slaves, this carried over to the Ottoman Empire and the barbary pirates, who took at least 1 million European & American slaves. Slavery was a practice in the Arab & Middle Eastern world long before Muhammad.

The commodity money system evolved into a system of representative money during the 7th century where receipts were issued to depositors of gold and silver merchants or banks. Eventually, the receipts that evolved from promissory notes were accepted and used as a means of payment. Paper money or banknotes were first used in China during the Song Dynasty during the same period.

In the 13th century, Marco Polo and William of Rubruck introduced paper money in Europe during the Yuan Dynasty. Marco Polo was originally fascinated by China’s early form of fiat paper money, which he at first praised for it’s ability to bring quick economic growth, however later recorded the negative effects it had on the economy as it become overprinted and worthless.

In 1609, Amsterdam Wisselbank’s innovations helped lay the foundations for the birth and development of the central banking system (which many would say is not a good development for society, and in fact quite dangerous, who have warned against it – such as some of the founding fathers of the United States). Respectively, banknotes, used alongside coins, were first issued by Stockholms Banco in 1661.

Between the 17th and 19th centuries, the gold standard replaced the use of gold coins as currency in Europe. Gold standard notes were made legal tender, and redemption into gold coins was discouraged. By the beginning of the 20th century, almost all countries had adopted the gold standard, backing their legal tender notes with fixed amounts of gold.

After World War II and the Bretton Woods Conference, fiat currencies, fixed to the U.S. dollar and vice versa, were adopted by most countries. In 1971 the U.S. government suspended the convertibility of the U.S. dollar to gold – this was after all Americans were required to turn in their gold for US dollars in 1933. The dollar has dropped in value since then. The dollar the U.S. currently has in play, was meant to extend the life of the USD, and is called the US Petro Dollar. It is tied to deals made with certain countries to only trade oil for USD, which people on different sides will say has caused many different problems, and which has and is being challenged by different countries and leaders.  

The 21st century has given rise to two disruptive financial technologies: virtual currencies and  mobile payments. A mobile payment is money sent through a portable electronic device such as a smartphone. Retailers may use platforms such as Apple Pay and Samsung Pay for point-of-sale payments and online banking and purchases. Virtual currencies, or cryptocurrencies, such as Bitcoin, Ethereum, etc. or new forms of money, which are not backed by physical commodities, or government approval (per say), but rather by interesting technology and the trust of their user bases.

Cryptocurrencies us cryptography, couples with blockchain technology (distributed public ledgers). The first successful cryptocurrency was Bitcoin, invented in 2009, and since it’s inception, hundreds of other crypto-backed coins have been introduced. Virtual currencies have no physical coinage, and have lower transaction fees than conventional online payment mechanisms. Virtual currencies are utilized by a decentralized authority through digital wallets such as Blockchains.my. They are a whole new way of looking at money – unlike government issued currencies.


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