What are the forms/types/kinds of money?

Evolution of money is one the most important invention in the history of human life.
The money was not invented but it developed with passage of time according to the changing
requirements of economies. It is not a result of brain storming of economist rather there is a
long process of evolution since start of civilization to this modern complicated credit system.
In the beginning of civilization the needs of people were very limited and therefore they used
to eexchange their goods with other peoples goods or sservice. Such a system of exchange
where goods and services are directly exchanged for each other without the use of money is
called barter system. There were many difficulties associated with barter system. So
gradually this system of exchange was replaced with money system of exchange. It is
generally believed that evolution of money has passed through following stages.

Commodity Money
Metallic Money
Paper Money
Credit Money

These stages of evolution of money are discussed as under.

1. Commodity Money:
Money is in fact discovered to remove the difficulties of barter. The people began to use
different goods as means of exchange like goats, animal-skins, knives, arrows, slaves etc., to
overcome the difficulties of barter system. It was difficult to borrow and lend and it was more
difficult to measure and store the value of goods and services.
2. Metallic Money:
Commodity money did not overcome all the problems of barter system and could not prevail
for longer time. In the beginning the pieces of gold and silver were used as money but it did
not solve the complicated problems of exchange. It was very difficult to measure the value
with these pieces of metal. This problem was solved by making standardized coins. The
metallic coins have a specific weight and shape. Coins are only used for smaller retail
payments because it is difficult to count, transport and store them.
3. Paper Money:
In the third stage of the evolution of money, paper money was discovered. In the beginning
on order too transfer money safely, the people deposited their metallic coins to trustworthy
persons and got receipts in this regard. These receipts became a convenient credit Instruments
and were freely used for borrowing and lending and making payment. In the 19th century
commercial banks started issuing their own notes of different colours and denominations
because it is easy to use, store and transfer.
4. Credit Money:

In the present day modern economies or bank money is used for making personal business
payments. In the developed countries, transactions are taking place with the help of deposits
or checking accounts with paper money. These are easily convertible into cash, therefore they
are convenient and safe.
Forms of Money
The money is generally classified under following heads on the basis of their course of
evolution and features.
1)
2)
3)
4)

Metallic Money
Commodity Money
Paper money
Bank money

5) Legal money
6) Plastic money
7) Near money

1. Metallic money:
The money made of any metal such as gold, silver etc. is called metallic money. It exists in
the form of coins. In our country the coins of Rs. 1, 2 and 5 are the current examples of
metallic money. Due to its weight, it is difficult to use this money in large quantity. Therefore
coins are used in small amounts only. The metallic money is of two types full bodied money
and
token money.
Full bodied coins:
When the face value of the coin is equal to the value of metal contained in the coin, the coin
is called a full bodied coin. The gold and silver coins of old times are examples of full bodied
coins.
Token money:
When the face value of a coin is greater than the value of the metal it contains, it is called
token money. In our country, all the coins are token money.

2. Commodity Money:
In commodity money, different commodities have been used as money like cattle, goats,
horses etc. commodity money was used in barter system in which goods were exchanged
with other goods and services. It was found that commodity money have some defects like
lack of double coincidence of wants, lack of sub division and store of value.

3. Paper Money:
Paper money refers to notes of different value made of paper which issued by the central
bank or government of the country. The paper money can be classified into representative
money, convertible money, and inconvertible money/fiat money.
Representative money:
Representative money is that money which is fully backed by equal metallic reserve. The
holder of a bank note can easily get it converted into metallic (gold & silver) form on demand
Convertible money:
It is the form of money which can be converted into gold, silver i.e. metallic reserves. But all
these notes issued by the government are not fully backed by gold. The amount of gold kept
by the government is a particular proportion of the notes issued.
Inconvertible/Fiat money:
Inconvertible or fiat money is one that we have in our pocket and use in daily business. The
face value of such money is more than the value of the paper. e.g. the value of the paper of
100 rupee note is almost nil but its purchasing power is equal to Rs.100. it has this value

because it has been declared as legal money by the government, so it is generally accepted as
a medium of exchange.
4. Bank Money:
This is the most modern form of money this money is also called credit. It only consists of
cheques, bill of exchange and drafts. Bank money is playing a vital role in the economic
development. Because varies transactions are settled without the use of paper money. Bank
money is safer than any other form of money but bank money also have some defects:
dishonor of cheque may delay payments, uneducated may not know the use of cheque
Cheques:
A cheque is an unconditional order by the client on his bank to pay a certain sum of money to
him or to any other party.
Bills of exchange:
A bill of exchange is an order by the drawer to the drawee to pay a sum of money to the
drawer or to any other party.
Draft:
Draft is a cheque drawn by a bank on its own branch or the branches of another bank
requesting it to pay on demand a specific amount to a person named on it.

5. Legal Tender Money:

The money that a person accepts as a means of payment and in discharge of debt is called
legal tender notice. All the notes and coins issued by the govt. and the central bank are legal
tender money. Legal tender money is of two types:
Limited legal tender money:
The money which can be used a means of payment up to a certain limit is called limited
tender money e.g. coins.
Un-limited legal tender money:
The money that can be used a mean of payment up to any limit or amount e.g. all the notes
issued by SBP.
Non legal tender money:
Bank money is the form of cheques, bills of exchange, and a promissory notes is not legal
tender money. Robertson says it optional money. So non legal tender money is money
which a person may or may not accept as a mean of payment.

6. Plastic Money:

Plastic money means the credit cards, smart cards. Plastic cards which have specially printed
set of characters. Recently the use of this money has increase.

7. Near Money:
A type of money which can easily be converted into money. It included deposits, government
bonds, printed bonds etc.