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What is the definition of money? [What are the history and types of money?]

What is the definition of money? [What are the history and types of money?]

You must have asked yourself many times  why and how money  was created for the first time? In the past, people made their exchanges through the trade of goods for goods and in exchange. In this type of transaction, a person could receive other goods or services from them in return for providing goods or services to another person or persons.

But this type of trading had limitations, among these limitations, we can mention the lack of coordination between the needs and the services and goods that can be provided. In other words, it is not the case that a person always has a service or good to exchange for other services and goods that belong to other people.

Because of this limitation, there was a desire to create a concept that can always be exchanged with other goods and services. In this regard, the traditional economy went towards the production of coins for buying and selling and meeting people’s needs.

Since the use of money has become one of the obvious things in our daily life, it may be less common for people to ask themselves what money really is and how it was created. As we mentioned in the history of the creation of money, in the past due to the lack of coordination between the needs of people and their goods and products, the traditional economy gradually moved towards the production of a single valuable object for buying and selling. This valuable commodity was called money and over time, it was produced in different forms.

What are the types of money?

Types of money can be classified based on different criteria, which are:

  • Types of money based on raw material
  • Types of money based on the authority of the issuer
  • Types of money based on cash or debt
  • Types of money based on monetary value and commodity value

In the following, we will examine each of these categories:

Types of money based on raw material

In early societies, money circulated as commodities. That is, a commodity such as rice, wheat, chicken, sheep, etc., which itself has a consumption value and is used as a medium of exchange as money. In such a system, a product would gain more acceptance that had more advantages than other products. Hence, after some time, metals were used as money because firstly they were more durable than other goods, secondly they were more divisible and thirdly they were easy and cheap to transport.

After metals, metal coins with their own weight and seal were introduced as money, because weighing devices were not available to everyone all the time and everywhere, and there was a possibility of cheating and underestimating them. Therefore, the coin became the currency of the people. The risk of theft, the cost of transportation for making payments, scratching and fraud in the carats, the cost of the society ignoring the ornamental and cosmetic use and other inefficiencies were all the costs of using the gold and silver monetary system in carrying out exchanges.

After the popularization of gold and silver as money, this was faced with inadequacies such as the risk of theft, fraud in the value of the coin, and the cost of transportation. Therefore, another instrument called full money receipts and bills with 100% repayment obligation in terms of gold and silver became popular, which indicated the value of gold and silver as money. Gradually, with the spread of these types of receipts and bills, people lost their sensitivity to the ability to convert them into gold and silver and looked at these receipts as a means of exchange.

At this stage, these receipts themselves were converted into money and cash credit was created. In fact, with the circulation of these receipts, its value as money exceeded the value of its original material. At this stage, coins gradually gained a higher monetary value than their commodity value and created token money.

  Also read this article: How to calculate the gold coin price bubble?

Types of money based on the authority of the issuer

Types of money are divided into two general categories according to the status of the issuer:

Types of credit money circulated by the government

symbolic money

Declarative money is a type of credit money whose value is higher than the market value of the goods in which it is used. In the case of symbolic coins, it should also be noted that if this difference in value does not exist, it will most likely be melted and removed from circulation.

The amount of copper, nickel, tin and zinc used in these coins, compared to the total amount of these metals supplied in the exchanges, is so small that if these coins are melted down and sold, it will not affect the market price of these metals. had

Banknote issued by the central bank

This money, which is actually a type of debt securities, is the current banknotes issued by the central banks of the countries and is the debt of the central bank to other economic sectors.

Debt bonds issued by the government

These bonds are issued by the government in critical situations and in cases where public assistance is needed, and it involves a certain amount, and the public buys it to help finance the government’s assistance to get out of the crisis, participates, and usually turns it into They refuse currency.

At the same time, the issuing authority undertakes to pay cash credit against this type of bonds, so these bonds can be considered a type of debt credit money, unlike ordinary bonds, these government bonds do not have interest.

military money

One of the activities that the occupiers did during the war in the occupied countries was the release of military money. The purpose of issuing military money by the occupying forces is to make a medium of exchange flow in the occupied country that can be controlled by the authority issuing the money, in other words, the occupying military forces easily have legal power to buy the required goods and services and this Money is available to them.

In addition, when the national forces were pushed back, all the securities were destroyed, and therefore there was no money left in the banks due to uncertainty. Therefore, the release of new money allowed economic activities to flow again in the occupied region.


Types of credit money circulated by banks and non-bank financial institutions

Bank bonds

The purpose of bank debt securities is those remittances that are issued in the form of a bank check or a guaranteed check or a bank transfer from a bank to itself or another bank, and these bonds are a type of debt credit money and indicate the debt of another bank.

Visual deposits

It is the debt of banks to individuals, which is registered in the bank’s accounts to individuals’ accounts, and a person can transfer it to his account with a remittance issued in another currency. Demand deposits are a type of debt credit money, because banks are obligated to pay cash credit money in return for receiving a remittance or check issued by the owner of demand deposits. It is obvious that the remittance or check issued is the instrument or document of transfer of this type of money and is not the money itself.

Types of money based on cash or debt


Cash is money whose credit value is objectified in an external object and the same thing carries an exchange value. In this type of money, the parties during the transaction see the entire exchange value independently in the money itself.

give money

Debt money is money whose credit value is not objectified in an external object; In other words, this money is first an obligation to pay to the signatory or issuer of its receipts. If the issued receipts of this type of money are lost, the signer or issuer of the receipts is still obligated to pay their debt to the owners of the receipts and the debt has not been discharged, also, people are not unaware of its convertibility when dealing with this money.

Of course, it should be noted that even if the issuer maintains the convertibility of these types of documents, if people, while dealing with these documents, ignore their convertibility and have an independent opinion about these documents, these bonds are no longer debt money and are independent. It will be cash.

  Also read this article: Free price action training from zero to one hundred

Types of money based on the comparison of exchange value and the value of its raw material

According to this criterion, types of money are divided into two types: full and credit. In pure money, the value of money as money is the same as the value of its primary material; While in credit money, the value of money as money is more than the value of its primary material.

Full cash

Full-fledged cash money is money whose primary value in terms of non-monetary uses is equal to its value in the form of money in exchanges and transactions, therefore it is called “full-fledged” and secondly, because full-fledged money has circulated in the hands of people and meets monetary needs. It fulfills instantly, it is called “cash”. Many of the old money that had a commodity aspect, such as rice, salt, etc., had value in a non-monetary (commodity) form as much as they had a monetary value.

Pay in full

Full-fledged debt money is money that, due to the full value of its raw material, its value is equal to money in non-monetary uses, moreover, because it is a debt, it circulates among people in the form of an obligation and credit. Of course, circulation is done with the help of a receipt of this type of money, such as a full money receipt, or a banknote with a 100% repayment obligation, based on gold and silver, or other types of goods.

Of course, this is the case if people do not forget to guarantee payment based on gold and silver or other types of goods in front of these receipts when exchanging these types of receipts or bills. Full money receipts were issued by exchanges, banks, and in some cases governments, and usually the value was equal to the value of the metal that these receipts indicated.

Of course, the amount of issuing receipts gradually increased from the amount of metal that the issuers kept. Banknotes with a 100% repayment commitment were also issued by governments or central banks. In this case, the value of the issued banknote reached several times the value of the base metal. Of course, governments or central banks had kept 100% of their repayment obligation in the form of gold and silver metals.

Issuing these types of receipts or bills was effective in reducing many costs, such as the cost of minting coins, storage, transportation, etc. Full-fledged money (both cash and debt) has become common and operated within the framework of monometallic, bimetallic and parallel monetary systems. Of course, in most cases, both full-fledged cash money, such as gold and silver coins, and full-fledged debt money, such as full-fledged money receipts or bills with 100% payment commitment, have been in circulation at the same time.

In the middle of the 20th century, the standard money in the ruling systems consisted of gold standard metal coins, or silver standard, or both. It is not necessary to issue full-quality coins only by the government, this practice can be entrusted to private institutions by regulating the purity percentage and weight of coins. But governments often had this in their monopoly.

cash credit

The meaning of cash credit money is any type of money whose value as money is more than its value as a commodity, or that no repayment obligation has been made by the issuer of this money in the form of gold, silver and other goods, or if such If there is an obligation, people have neglected it. This type of money flows with a value greater than the value of its raw material.

In some cases, the market value of the material from which money is made is very small and cannot be compared to the current value of money; Like many paper money that are considered official money in today’s economy. In the case of mint money, such as nickel coins, etc., although the market value of their raw material may be high, it is still less than their value as money.

Now the question is, how can money acquire a value, more than the value of the raw material from which it is made, and maintain that value? In response to this question, it can be said that the additional value of credit money comes from its public acceptance as money and the credibility of its issuing authority, and as long as the public acceptance and credibility of the publisher remain, the value of credit money is preserved.

Debt credit money

Debt credit money is, therefore, a credit whose value as money is greater than the value of its primary material in non-monetary uses, and because it is a debt, it circulates among people in the form of an obligation and credit, and the issuer of the obligation to repay this type of money has undertaken and people are not oblivious to this obligation.

Of course, this action is done with the help of receipts of this type of money, such as guaranteed or bank or ordinary checks or bank deposit documents with a 100% repayment commitment, based on cash credit money, which is in the form of banknotes and common coins of the country. Bank current deposits are a type of debt credit money.

Definition of money from the point of view of economists

Some economists believe that the proper definition of money is possible only by knowing its functions. According to this definition, three main tasks have been identified, which are: means of exchange, counting unit and store of value, each of which I will explain to you.

What are the main uses of money?

Money is a medium of exchange

Money creates exchange value and shows absolute exchange value. Therefore, it can be used as a medium of exchange, which could not be a medium of exchange if it had no actual exchange value. A tool without value cannot play the role of being a tool.

The fact that someone is willing to hand over a commodity to another in exchange for receiving a certain means of exchange is because he knows that this means carries “exchange value” with him, he can possess it, and because money has value. It is an exchange, it is accepted as a medium of exchange.

  Also read this article: Free stock market training from zero to one hundred

Money as a unit of measurement or a measure of value

Money acts as a unit of account because the value of goods and services is conventionally measured and expressed in terms of monetary units, which are called commodity prices. By doing this, since the prices are comparable to each other, the exchange process becomes easy.

Because the items are expressed with a common unit that can be added. Unlike other units such as kilograms, liters, and meters, money as a unit for measuring the value of goods and services is not fixed, and if prices increase, its purchasing power decreases.

Money as a means of storing value

Although money creates purchasing power for a person in the present, it also gives its owner the ability to purchase for future expenses; Therefore, its owner can save it for future expenses and unforeseen expenses.

Predictions of future prices by the holder of money determine the amount of money as a store of value. If prices are predicted to be rising, the commodity is used as a store of value, and conversely, if prices are falling, the desire to hold money as a store of value increases.


Money is divided into different types based on different criteria, which include: types of money based on raw material, types of money based on the authority of the issuer, types of money based on cash and debt, types of money based on monetary value and commodity value. Also, money has various uses such as exchange, a measure for measuring value and storing value.

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