What are the 4 Types of Money?

By Aarna Tiwari|Updated : July 6th, 2022

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. 

Explain 4 Types of Money?

Under macroeconomics, there are 4 major types of money. These are-

  • Commodity Money: Whenever any commodity is used for exchange purposes, the commodity becomes equivalent to the money and is called commodity money. It is the simplest kind of money that is used in a barter system where the valuable resources fulfill the functions of money. 
  • Fiduciary Money: Fiduciary money depends on the confidence of the value of money that it will be generally accepted as a medium of exchange. Whenever any bank assures the customers to pay in different types of money and the customer sells the promise or transfers it to somebody else, it is called fiduciary money. Fiduciary money is generally paid in gold, silver, or paper money.
  • Fiat Money: Fiat money gets its value from a government order. Fiat currency is the kind of money that does not have any intrinsic value and it cannot convert 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 the 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 the portion of a currency that is made of debt generated by commercial banks. Commercial bank money consists mainly of deposit balances that can be transferred either by means of paper orders or electronically.

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What are the 4 Types of Money FAQs

  • As per the majority of economists, there are 4 major types of money. These 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. It basically has three prime functions-

    • Medium of exchange.
    • Store of value.
    • Standard of value (unit of account)

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