The money and banking sector is the nervous system of economic activity, so we cannot imagine in today's world an economy and economic activity that grows, continues, and develops without money, so what are the types of money and how did they arise?
Definition of money
- Everything is generally accepted by the people as a medium of exchange or debt settlement.
- Others define it as anything commonly used and generally accepted as a means of exchange or as an assessment tool.
The genesis of money
- The emergence of money and the acceptance of humanity’s dealings with it was linked to the development of human needs and the expansion and growth of desires after bartering was unable to facilitate the fulfillment of these needs and could not be satisfied easily.
- Therefore, the development of the form and type of money was linked to the development of human needs.
- The money took many forms, the first of which was (commodity) represented in individuals accepting a specific commodity as a substitute for giving up what they had of other commodities.
- The quality of the commodity used for this purpose (a mediator of exchange) differed in different societies and the succession of historical stages that humanity passed through until money took its current form known as paper money (banknote).
money functions
Below we briefly refer to each of these functions:
Money as a medium of exchange
It is the oldest function of money, and that function is related to the general acceptance of money in the payment of the value of goods and services and the settlement of debts.
Money as a measure of present value
- It facilitates the process of exchanging and comparing the values of different commodities, and when the value of the monetary unit used as a measure of value is relatively stable and fixed.
- This helps confidence in money and helps money complete its function as a measure of present values.
Money as a measure of future values
- This function indicates the possibility of money to settle the exchanges under negotiation in the future, and the importance of this function is increasing in contemporary societies.
- Most transactions are done by forward selling to meet the recession conditions in most products, and for money to perform this function, there must be relative stability in the value of money.
Money as a store of value or store of value
When individuals resort to the possession of money as a store of value, this stems from the fact that money is a fully liquid asset that can be used to purchase goods and services at any time.
Money as a driving force for economic activity
Where money plays a vital and important role so that it can influence the volume of this activity and levels of employment through changes in the money supply.
money attributes
The characteristics of money differ according to its type and its historical development in human societies. As for the general characteristics of money that must be available in the monetary unit to perform its functions, the most important of them are:
Homogeneity and symmetry
- This means that all the monetary units used should be as homogeneous and similar as possible to have the status of general acceptance, as is the case in cash coins of precious metals.
- As for other types of commodity money (non-metallic), this characteristic is relative.
- In the newly used money, the homogeneity is related only to the purchasing power of the monetary unit, while the monetary unit itself is immaterial and intangible like electronic money.
Ease of transportation and handling
Money should consist of units that are easy to transport and carry from one place to another, facilitating the exchange process.
Indivisibility
The monetary unit (the pound, for example) must be divided into smaller units, such as half a pound and a quarter pound, and so there are small transactions that require the presence of small monetary units.
Inability to counterfeit
For money to function properly, it must be made of a material that is difficult to counterfeit.
types of money
Money is divided into the following types:
commodity money
They are made of a material that has a commercial use in addition to its monetary functions, such as gold coins.
Convertible paper money
It means that paper issued by a bank (usually the central bank) pledges to return to its holder upon requesting the amount specified on the paper in the form of a legal coin.
Non-convertible paper money
It has two types:
government money
Money is issued by governments and imposed by the force of law without having a corresponding reserve of minerals, and it is limited to small groups (piastres).
And it is just auxiliary money that has a limited release power, that is, it can not be used in the settlement of debts except within the limits of an amount determined by law.
banknotes
It originated at the beginning as paper money, document, or exchangeable for gold, but the governments of various countries issued laws according to which the issuing bank was relieved of the obligation to convert it into gold. At the same time, it was necessary to accept it in dealing and it was given unlimited power of discharge, and thus the scientific importance of the distinction between banknotes and government banknotes has expired, especially after central banks became owned by governments in most countries.
bank money
They are represented by the latest and most widespread types of money, represented in current deposits or demand deposits with commercial banks whose ownership is traded from one individual to another through checks. Therefore, the checks are not bank money, but rather a means and a tool for its circulation.
electronic money
The latest types of money are considered a development that emerged as a result of the advent of computers, the development of the world of communication, where all payments are settled using electronic communications.
It has several types:
instant discount cards
Similar to a credit card, it enables consumers to purchase goods by electronically transferring the price from their bank accounts to merchant accounts and used in the same places as the credit card.
stored value card
It is similar to a debit card but differs in that it has a fixed amount of cash number and is purchased with a present amount of cash that the consumer is willing to spend.
Electronic cash payment ( e-cash )
It can be used on the Internet to purchase goods or services, and the consumer can obtain this money by opening an account in a joint bank on the Internet, and then he has an e-cash that can be transferred in favor of the seller from the consumer’s computer to the merchant’s computer, and the merchant gets the money from the consumer’s bank before he ships the goods.
electronic checks
Transfer of money electronically through checks without the need to send a paper check, by printing the check and sending it to the party from which it is purchased, then this party communicates with the bank. Once the bank confirms the validity of the electronic check, it transfers the money from the check owner’s account to the seller.
international money
These are used by the International Monetary Fund in settling international payments in what is known as Special Drawing Rights, which are restricted to member countries of the Fund.
It has a specific system for dealing with it within the international monetary system.
From the above, we see that money developed with the development of the economy and that the economic system does not work efficiently unless money is available, employed, and pumped into the cycle of economic activity.
Also, by using different types of money in exchange operations, both production and distribution could be simplified.
