Gold, silver, cowrie shells, cigarettes, and even cocoa beans have been used as money. Although these items are used as commodity money , they also have a value from use as something other than money. Gold, for example, has been used throughout the ages as money although today it is not used as money but rather is valued for its other attributes.
Gold is a good conductor of electricity and is used in the electronics and aerospace industry. Gold is also used in the manufacturing of energy efficient reflective glass for skyscrapers and is used in the medical industry as well. Of course, gold also has value because of its beauty and malleability in the creation of jewelry. As commodity money, gold has historically served its purpose as a medium of exchange, a store of value, and as a unit of account.
Commodity-backed currencies are dollar bills or other currencies with values backed up by gold or other commodity held at a bank. During much of its history, the money supply in the United States was backed by gold and silver. As economies grew and became more global in nature, the use of commodity monies became more cumbersome.
Countries moved towards the use of fiat money. Fiat money has no intrinsic value, but is declared by a government to be the legal tender of a country. The only backing of our money is universal faith and trust that the currency has value, and nothing more. Money is what people in a society regularly use when purchasing or selling goods and services. If money were not available, people would need to barter with each other, meaning that each person would need to identify others with whom they have a double coincidence of wants—that is, each party has a specific good or service that the other desires.
Money serves several functions: a medium of exchange, a unit of account, a store of value, and a standard of deferred payment. There are two types of money: commodity money, which is an item used as money, but which also has value from its use as something other than money; and fiat money, which has no intrinsic value, but is declared by a government to be the legal tender of a country. Hogendorn, Jan and Marion Johnson.
The Shell Money of the Slave Trade. Cambridge University Press, Here is a trivia question: In the history of the world, what item was used for money over the broadest geographic area and for the longest period of time? The answer is not gold, silver, or any precious metal. It is the cowrie, a mollusk shell found mainly off the Maldives Islands in the Indian Ocean.
Cowries served as money as early as B. By the s, they were in widespread use across India and Africa. For several centuries after that, cowries were used in markets including southern Europe, western Africa, India, and China for a wide range of purchases: everything from buying lunch or a ferry ride to paying for a shipload of silk or rice.
Commodity money is a good whose value serves as the value of money. Gold coins are an example of commodity money. In most countries, commodity money has been replaced with fiat money. Fiat money is a good, the value of which is less than the value it represents as money. Measure ad performance. Select basic ads. Create a personalised ads profile.
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What Is Money? Understanding Money. Functions of Money. Types of Money. Key Takeaways Money is a generally accepted, recognized, and centralized medium of exchange in an economy that is used to facilitate transactional trade for goods and services.
The use of money eliminates issues from the double coincidence of wants that can occur in bartering. Economically, each government has its own money system, defined and monitored by a central authority. Cryptocurrencies represent a new form of money, with international exchange opportunities. Cryptocurrencies are a type of money that can be used to facilitate international transactions. Article Sources. Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts.
We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy. Compare Accounts. The offers that appear in this table are from partnerships from which Investopedia receives compensation.
This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace. Related Terms What Is Chartalism? Chartalism is a non-mainstream theory that emphasizes the impact of government policies and activities on the value of money. Legal Tender Definition Legal tender describes any official medium of payment recognized by law that can be used to extinguish a public or private debt or meet a financial obligation.
What Is Hard Money? Hard money is a currency backed by a gold standard or other precious metal, or types of lending, political contributions, and government funding. Digital Money Definition Digital money or digital currency is any type of payment that exists purely in electronic form and is accounted for and transferred using computers. What Is a Crack-Up Boom? A crack-up boom is the crash of the credit and monetary system due to continual credit expansion and price increases that cannot be sustained long-term.
Currency Substitution Definition Currency substitution is when a country uses a foreign currency in lieu of, or in addition to, its currency, mainly due to the former's stability.
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