Chapter 11: Problem 371

What are the major forms of money in use?

Short Answer

Expert verified

The three major forms of money in use today are: 1. Commodity Money: A type of money that has intrinsic value, such as gold and silver coins, salt, or livestock. 2. Fiat Money: Money that derives its value from the trust placed in it by people, issued by a country's government and declared as legal tender, like the US Dollar, Euro, Japanese Yen, and British Pound. 3. Digital or Electronic Money: Money that exists only in digital form and is stored, exchanged, and managed electronically, including digital bank deposits, mobile money, cryptocurrencies, and digital wallets like PayPal and Venmo.

Step by step solution

Define Money

Money is a widely accepted medium of exchange, a measure of value, and a store of value. It enables transactions between individuals, businesses, and governments in a standardized and efficient manner. Money comes in various forms, including physical currency, digital currency, and other financial instruments.

Identify and Explain the Major Forms of Money

There are three major forms of money in use today: 1. Commodity Money 2. Fiat Money 3. Digital or Electronic Money

Explain Commodity Money with Examples

Commodity Money is a type of money that has intrinsic value and can be used as a medium of exchange. The value of commodity money comes from the underlying commodity itself, which can be a scarce resource or a valuable good. Examples of commodity money include gold and silver coins, salt, and even livestock.

Explain Fiat Money with Examples

Fiat money is a type of money that derives its value from the trust and confidence that people place in it. It has no intrinsic value and is usually issued by a country's government and declared as legal tender. Fiat money is backed by the credit and trustworthiness of the issuing entity, usually a government or central bank, and is not convertible or redeemable for any commodity. Examples of fiat money include the US Dollar, Euro, Japanese Yen, and British Pound.

Explain Digital or Electronic Money with Examples

Digital or Electronic Money is a type of currency that exists only in digital form and is stored, exchanged, and managed electronically. It does not have the physical presence like traditional forms of money. Digital money can be created by governments, central banks, or private entities. Examples of digital money include digital bank deposits, mobile money (i.e., M-Pesa), cryptocurrencies like Bitcoin and Ethereum, and digital wallets like PayPal and Venmo. With this understanding, you should now be able to identify and explain the major forms of money in use today.