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What are the different types of money?

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Quick Answer

Commercial bank money, fiduciary money, fiat money and commodity money are the four major types of money. Each type of money varies in strength and liability.

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Full Answer

Commodity money is used in barter trade. Valuable resources discharge the functions of this money. Its value comes from the value of the specific resource utilized for the purpose. Scarcity of resources is the only thing that limits commodity money. This type of money has intrinsic value.

Fiat means “command of the sovereign.” Fiat money does not have any intrinsic value and cannot be converted into valuable resources. A government order determines its value. This means that only a government order can make it a legal instrument for any transaction. Fiat money is controlled, because it can affect the economy if misused. As of 2014, this money forms the basis of the modern money system.

Fiduciary money is the money paid in paper money, silver or gold. Other examples of fiduciary money are bank notes and checks. This is because they are tokens used as money and usually carry the same value.

Commercial bank money is also known as demand deposits. Commercial bank money refers to claims against financial or banking institutions that can be utilized for the purchase of services and goods. A demand deposit account refers to an account where one can draw funds at any time by either check or cash, without giving the financial or bank institution any notice.

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