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What are the 4 Types of Money?

By BYJU'S Exam Prep

Updated on: September 12th, 2023

The 4 Types of Money are Commodity Money, Fiat Money, Fiduciary Money and Commercial Bank Money. Money is defined as a generally accepted medium of exchange for goods and services and is studied in the macroeconomics section of economics. Money serves as a medium of exchange, enabling individuals and organisations to get the things they require to survive and prosper. Before the invention of money, one method of exchange used by people was bartering.

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Types of Money

Under macroeconomics, there are 4 major types of money, such as:

Commodity Money: Whenever a commodity is used for exchange, the commodity becomes equal to money and is called commodity money. It is the simplest type of money used in a barter system where valuable resources perform the functions of money.

Fiduciary Money: The value of money depends on the belief that it will be generally accepted as a medium of exchange. Whenever a bank gives an assurance to the customers to pay various types of money, and the customer sells the promise or transfers it to someone else, it is called fiduciary money. Payment of fiduciary money is usually made in gold, silver, or paper currency.

Fiat Money: The value of fiat money is derived from a government order. Fiat currency is a type of money that has no intrinsic value and cannot be converted into a valuable resource. The value of fiat money is determined by government orders which makes it a legal instrument for all transaction purposes. Fiat money is the basis of all modern money systems.

Commercial Bank Money: Commercial bank money is described as claims against financial institutions that can be used to purchase goods or services. It represents that part of a currency that is made up of loans generated by commercial banks. Commercial bank money mainly consists of deposit balances that can be transferred either through paper orders or electronically.

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