Types of Money

Money comes in all shapes and sizes. The items used as money are a reflection of the society in which they are used. Money as a rule includes coins, paper money, checks and near money. Checks or checkbook money usually make up more than 70 percent of the nation's mojm3yj3uppJy_,„and_ nearly 90 percent of the transactions in most countries are completed by writing checks. Because checks are payable to the holder of the check on demand, checking accounts are often called demand deposits. Checks are representative money because they stand for the amount of money in a person's account. They are generally accepted because the bank must pay the amount of the check when it is presented for payment. Checks, therefore, are considered money because they are a medium of exchange, a standard of value, and a store of value. Other financial assets are very similar to money. These assets, such as savings accounts and time deposits, are called near money and are not usually considered part of the nation's money supply. Bills of exchange are examples of —леаг money. Though they are easily accessible, these accounts cannot be used directly to buy goods or pay debts. Depositors, for example, cannot pay bills directly from their savings accounts. Since funds in these accounts can be easily convert­ed into cash, however, they are considered near money.

Sources of Money's Value

Money must have and retain value. All money falls into three categories according to what gives the money its value. 170

The three categories of money are commodity money, repre­sentative money, and fiat money.

Commodity money. An item that has a value of its own and that is also used as money is called commodity money. Throughout history, societies have used many commodities as money. The ancient Romans sometimes used salt as money. Precious metals such as gold and silver, and gems such as rubies, emeralds, and diamonds, have often been used as money. The majority of nations in the world today use cur­rency - coins and paper bills - for money. The Lydians, an ancient people in Asia Minor, minted the world's first coins about 700 B.C. The Chinese developed the first paper curren­cy, perhaps as early as A.D. 1000 or A.D.1100.

Representative money. Money that has value because it can be exchanged for something valuable is representative money. Checks are representative money because they can be exchanged for currency as long as the check writer has suffi­cient funds on account.

Fiat money. Value is attached to fiat money because a gov­ernment decree, or fiat, says that it has value. Coins and paper money are examples of fiat money. The money has value because the government says that citizens must accept paper money and coins for all transactions.

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