Do You Know the 3 Types of Money in the World?

Despite dealing with money on a day-to-day basis and having a certain degree of obsession with money, do you know the 3 types of money in the world？ Money is not solely the numerical figures in your bank account or the cash you hold in your hands. It is more than that, so keep reading for more.

Money as a financial instrument can be divided into three types. Though many other derivative products carry intrinsic monetary values, they are not accepted as an immediate payment form that could be used in exchange for goods and services.

Commodity money is a financial instrument that has been around for the longest period. In the olden days, humans used salt, beads, seashells, tobacco, silver, and gold as money in exchange for goods and services. As civilization advanced, a standardized system of trade was also developed. Unlike later forms of money, commodity money has a tangible store of value that is believed to withstand the test of time as its physicality gives users confidence in it. The commonly acknowledged and accepted commodities are gold, silver, uranium, and more.

Fiat money originated as pieces of paper during the Chinese Tang dynasty in the 11th century, making China the first country to use fiat money. Government officials authenticated Fiat money as a legal tender. It is not backed by any commodity, such as gold or silver. It could neither be redeemed nor converted. Its value is derived from government backing, allowing individuals and businesses to place their trust in it as long as they have faith in their government.

Representative money is a government-created instrument backed by a commodity or fiat currency. It generally represents something valuable but has little or no intrinsic value. Checks, credit cards and fiat money are the main examples of representative money that we use on a daily basis. The value of presentative money is derived from the government or the financial institutions that support it.