Q: Explain the different types of money?



The word money is derived from the Latin word “Moneta” which was the surname of the Roman Goddess of Juno in whose temple money was coined. The actual of money can be more accurately defined as:

Definitions of Money


According to Crowther: –

“Anything that is generally acceptable as a medium

of exchange & at the same time acts as a measure

and store of value is called money”

According to D.H.Cole: –

“Purchasing power with which something can be bought is called money”


According to J.M.Kevnes: –

“Money is that by the delivery of which debts contracts

& price contracts are discharged and in the shape of

which general purchasing power is held”


Types of Money:

Money is honey and it can be called by any name. It is ever ready to serve the people all the times. So the different types of money are as follows.

Classification of Money

On the basis Of nature



Ideal ”




On the basis of contents

On the basis of authority

– Govt. Money

Bank Money

On the basis of legality

Paper money Representative


Metallic Money —— full-bodied money

Token Money

Inconvertible-; ‘^f*^*



Money limited legal Tender money

ited legal money

Optional Money




On the Basis of Nature

  1. Actual Money:

Actual money is that money, which remains in circulation for making Actual money, serves as a store of value. All coins notes issued by the govt and central bank of country are actual money.


  1. Ideal Money:

Ideal money is used to maintain books of accounts. The prices of goods are expressed in terms of such money. It is also called “money of account” loans are granted in terms of ideal money In Pakistan rupee is money of account. In USA, dollar is used whereas in Saudi Arabia Rival is basis of dealing. The lenders and borrowers deal through money of A/C.


  1. Near Money: –

Near money is that money which can be converted into actual money for making payments. It cannot be used directly for purchase of goods & services. The assets having ready Sales markets are near money. Whenever there is need for money such assets are convertible into actual money. Saving accounts, govt bonds, fixed deposits, prize bonds are example of near money.


(B) On the Basis of Content


  1. Metallic Money: –

Metallic money consist of coins of any metal which circulate in the economy. Coins have particular weight and with the symbol of the govt of the country. There are two kinds of coins.


(a) Full bodied money; –

It is that money whose face value is equal to the value of metal used in it.


(b) Token money:

Its face value or printed value is higher than the value of metal used in it.


  1. Paper Money: –

Paper money means, the currency notes issued bye the central bank and govt. Normally Central bank of a country issues currency notes. Use of paper money has become wide due to its convenience as a medium of exchange. Its importance is clear from the fact that 95% of total currency in circulation in Pakistan consists of paper money. There are 4 types of paper money.


  1. Representative paper money:

Representative money is that which can be converted into standard money on demand. This type of money is used for exchange of goods & services. The govt. can keep cent percent metallic reserves for the issue of paper money. In this case it is called representative paper money.


  1. Convertible paper money:

Convertible paper money is that which can be exchanged for standard money or full-bodied money on demand. The govt. keep some reserves for the issue of convertible money. There are no cent percent metallic reserves for it.

  1. Inconvertible paper money:

Inconvertible paper money is that which cannot be converted into standard money. The govt. may or may not maintain any metallic reserve. This type of money has less weight and its transfer is easy.


  1. d. Fiat money:

Fiat money is inconvertible money having little or no value in it. Fiat means the order of government. The people for exchange of goods & services accept fiat money. Due to govt order paper money is fiat money. Whenever the govt. cancels any note, the holder will lose the whole value because as a paper, fiat money is worthless.


(C) On the Basis of Authority


  1. Government Money:

The govt. money is issued bye the govt. In Pakistan one rupee coin, two-rupee coin and other coins are issued by the govt. The Secretary Ministry of Finance has powers to issue such money under the law. The govt. money is helpful for settlements of nominal payments.


  1. Bank Money:

The term Bank money applies to that money which is not legal tender money but is acceptable as a medium of exchange on account of confidence in the issuing authority. The deposits with commercial banks i.e. demand deposits (current a/c) are also included in bank money. The credit visa card, cheques, bills of exchange and drafts are bank money.

(D) On the Basis of Legality


  1. Legal Tender Money:

Anything, which the state declares money, is money. Such money has the legal power to discharge debts. The money, which a person must legally accept for payment of dues, is called legal tender money. There are 2 types of legal tender money.

  1. Limited legal Tender money: – This money can be used upto a certain limit. Nobody is legally bound to accept payments of large amounts through this form of money. In Pakistan coins upto paisa are limited legal tender money.


  1. Unlimited legal Tender money: – Unlimited legal Tender money is that which can be forced upon others in payments, upto unlimited extent. In Pakistan, all paper notes and coins above fifty paisa are considered as unlimited legal tender money.


  1. Optional: –

The credit instruments like cheques, bills of exchange and promissory notes are called Optional Money. It is acceptable at the option of the creditor. The people accept such money due to customs and traditions of trade.




All the above given are the different forms of money that fulfills all the standards, required by the modern economy on different basis.

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