Forms of Money

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types of money

Amazing Facts

If you had 10 billion $1 notes and spent one every second of every day, it would require 317 years for you to go broke.
There is about $823 in circulation for each person in America.
The $100 note has been the largest denomination of currency in circulation since 1969. The largest bill ever printed was the $100,000 bill; it was actually a Gold Certificate issued in 1934. These notes were used for transactions between Federal Reserve banks and were not circulated among the general public. President Woodrow Wilson was depicted on the bill.

Paper money refers to note of different denominations made of paper and issued by the central bank or Government of the Country.

It is that money which is fully backed by equivalent metallic reserves.
The holder of the bank note can easily get it converted in standard metal money on demand.

Paper money which carries a promise by the issuer that the paper can be converted into the standard money metal at some future date.
The state or the central bank which issues convertible paper currency does not keep 100% of metallic reserve.
Some part of the total supply of convertible paper money is fully backed by the standard metal money is known as Covered issue.

(a) The individuals can get their paper money converted into cash,
(b) The paper money is backed by gold and silver reserves. But, on the assumption that all the currency notes are not simultaneously presented by the public for encashment, the value of metallic reserves is less than the value of the notes issued,
(c) The reserves comprise of (i) metallic portion containing gold, silver and standard coins, (ii) fiduciary portion containing approved securities

It is that money which is not redeemable or convertible into gold or silver on demand.
It is accepted because it has been declared legal tender by the issuing authority and has general acceptance as a medium of exchange.
The intrinsic value of fiat money is nil.

Fiat money in the words of Keynes is that which is created and issued by the state but is not convertible by law into any thing other than itself and has no fixed value in terms of an objective standard.

(a) It has significantly less intrinsic value than its face value,
(b) It is not convertible into any valuable asset,
(c) It is accepted in transactions at face value because it is unlimited legal tender.

a) The danger of over-issue of fiat money (or inflation) is always present in a system of fiat money,
(b) It lacks public confidence as it is not backed by metallic reserves,
(c) Foreign exchange rates are liable to wide fluctuations under fiat money system because fiat money is not linked with other country's money through gold.

Under paper standard, the central bank has not to keep gold or silver for issuing of the paper notes.
The cost of printing paper notes is also very small.
It is thus, most economical form of monetary standard.

Under paper standard, the monetary authority is free to determine its monetary policy.
It therefore regulates the money supply in such a way that productive resources of the country are utilized to their maximum and greater economic growth achieved.

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