03-Forms of Money

MOHAMED-CHERIF MESSAADIA UNIVERSITY - SOUK AHRAS
Faculty of Economics, Commerce and Management Sciences

Basic Education Department
Business English
(1st Semester)
LESSON 03
Forms of Money
Nadji Harireche 2023

CONTENTS:
What Is Money?
How Money Works?
Properties of Money
Time Expressions
Types of Money
Money is a system of value that facilitates the exchange of
goods in an economy. Using money allows buyers and sellers
to pay less in transaction costs, compared to barter trading.
The first types of money were commodities. Their physical

properties made them desirable as a medium of exchange. In
contemporary markets, money can include government-issued
legal tender or fiat money, money substitutes, fiduciary media,
or electronic crypto-currencies.
1. Money is a system of value that facilitates the exchange of goods.
2. The use of money eliminates the problem of bartering where both parties
must have something the other wants or needs.
3. Historically, the first forms of money were agricultural commodities, such
as grain or livestock.
4. Today, most money systems are based on standardized currencies that
are controlled by central banks.
5. Digital crypto-currencies also have some of the specific properties of
money.
Money is a liquid asset used to facilitate transactions of value. It is used as a
medium of exchange between individuals and entities. It's also a store of value and
a unit of account that can measure the value of other goods.
As economies became more complex, money was standardized into currencies.
This reduced transaction costs by making it easier to measure and compare value.
Also, the representations of money became increasingly abstract, from precious
metals and stamped coins to paper notes, and, in the modern era, electronic records.
During World War II, cigarettes became a de facto currency for soldiers in
prisoner-of-war camps. The use of cigarettes as money made tobacco highly
desirable, even among soldiers who did not smoke
A quality that allows one thing to be exchanged, substituted, or
Fungible returned for another thing, under the assumption of equivalent value.
Thus, units of money should be interchangeable with one another.
Money should be durable enough to retain its usefulness for many,

Durable
future exchanges. A perishable good or a good that degrades quickly
due to various exchanges will be less useful for future transactions.
Money should be easy to carry and divide so that a worthwhile

quantity can be carried on one's person or transported. For example,
Portable
trying to use a good that's difficult or inconvenient to carry as money
could require physical transportation that results in transaction costs.
The authenticity and quantity of the good should be readily apparent

Recognizable
to users so that they can easily agree to the terms of an exchange.
The supply of the item used as money should be relatively constant

over time to prevent fluctuations in value. Using a non-stable good
Stable
as money produces transaction costs due to the risk that its value
might rise or fall.
Money can be something determined by Market Participants to
have value and be exchangeable. Money can be currency (Bills
And Coins) issued by a government. A third type of money is
Fiat Currency, which is fully backed by the economic power and
good faith of the issuing government. The fourth type of money
is Money Substitutes (Fiduciary Media), which are anything that
can be exchanged for money at any time. For example, a check
written on a checking account at a bank is a money substitute.
Finally, some jurisdictions have recognized Crypto-currencies
as a payment medium, including the government of El Salvador.
Money can originate out of the spontaneous order of markets.
As traders barter for various goods, some goods will prove
more convenient than others because they can have the best
combination of the five properties of money listed above
(Fungible, Durable, etc...)
Over time, these goods may become desirable as objects of

exchange, rather than for practical use. Eventually, people
may come to desire a good solely for future trading.
Historically, precious metals such as gold and silver were often

used as market-determined monies. They were highly prized
across many different cultures and societies.
When a certain type of money is widely accepted throughout an
economy, government bodies may begin regulating it as a
currency. They may issue standardized coins or notes to
further reduce transaction costs.
A government may also recognize some money as a legal

tender, meaning that courts and government bodies must
accept that form of money as a final means of payment.
Issuing money allows the government to benefit from

seigniorage, the difference between the face value of a
currency and the cost to produce it.
Many countries issue fiat currency, which is currency that does not
represent any type of commodity. Instead, fiat money is backed by the
economic strength of the issuing government. It derives its value from
supply and demand and the stability of the government.
Fiat money allows the issuing government to conduct economic policy
by increasing or reducing the money supply. Since fiat money does not
represent a real commodity, it falls to the issuing government to ensure
that it meets the five properties of money outlined above.
The International Monetary Fund (IMF) and World Bank serve as global
watchdogs for the exchange of international currencies. Governments
may enact capital controls or establish pegs in order to stabilize their
currency on the international market.
Sometimes traders exchange money substitutes such as written
statements of debt that can be redeemed later. These statements can
themselves adopt some of the properties of money.
The use of money substitutes can increase the portability and

durability of money, as well as reduce the cost of storage. However,
there are risks involved with money substitutes. Banks may print more
bills than they have money to redeem, a practice known as fractional
reserve banking. If too many people try to make withdrawals at the
same time, the bank may suffer from many financial problems.
Fiduciary media are types of money substitutes introduced into

circulation that aren't fully backed by the base money held to back
money substitutes. For example, paper checks, token coins, and
electronic credit represent contemporary examples of fiduciary media.
In recent years, digital currencies that do not exist in physical
form, such as Bitcoin, have been introduced. Unlike electronic
bank records or payment systems, these virtual currencies are
not issued by a government or other central body. Crypto-
currencies have some of the properties of money and are
sometimes used in online transactions.
Although crypto-currencies are rarely used in everyday

transactions, they have achieved some utility as a speculative
investment or a store of value. Some jurisdictions have
recognized crypto-currencies as a payment medium, including
the government of El Salvador.

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MOHAMED-CHERIF MESSAADIA UNIVERSITY - SOUK AHRAS

Faculty of Economics, Commerce and Management Sciences

Nadji Harireche 2023

How Money Works?

The first types of money were commodities. Their physical

Money should be durable enough to retain its usefulness for many,

Money should be easy to carry and divide so that a worthwhile

The authenticity and quantity of the good should be readily apparent

The supply of the item used as money should be relatively constant

Over time, these goods may become desirable as objects of

Historically, precious metals such as gold and silver were often

A government may also recognize some money as a legal

Issuing money allows the government to benefit from

The use of money substitutes can increase the portability and

Fiduciary media are types of money substitutes introduced into

Although crypto-currencies are rarely used in everyday

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