Types of Money | Commodity, Representative, Fiat, and Bank | Money Instructor

Summary

This script explores the concept of money, distinguishing between two main types: commodity money, which has intrinsic value like precious metals, and fiat money, which is government-authorized and lacks intrinsic value. It also touches on representative money, a precursor to fiat, and bank money, which includes checkable deposits. The script highlights the importance of acceptance in defining money and the potential issues with inflation and fluctuation in commodity money.

Takeaways

• 💼 Money is a medium of exchange used for the transfer of goods or services and can take many forms.
• 🏵️ Commodity money has intrinsic value, such as precious metals like gold and silver, and serves as both a medium of exchange and a store of value.
• 🔍 The value of commodity money can fluctuate unpredictably, affecting its reliability as a stable currency.
• 🌐 Early forms of money in the United States included gold, which led to inflation after significant gold discoveries.
• 🐎 Lower quality commodities could drive higher quality ones out of circulation due to the variability in commodity money's value.
• 📜 Representative money is a token or certificate exchangeable for the underlying commodity, like gold, and was a precursor to modern currency.
• 💼 Fiat money is the current form of currency used in modern economies, authorized by governments and not necessarily having intrinsic value.
• 📈 Fiat money's value is based on government decree and public trust rather than the material it's made from.
• 🏦 Bank money refers to the credit banks offer to depositors and is used for transactions without the need for physical currency.
• 📊 Acceptance is the key factor that makes something money; even fiat money is accepted as long as it maintains public trust and isn't over-issued.
• 🔎 If too much money is printed, leading to rapid devaluation, people may seek alternative forms of currency.

Q & A

What is the definition of money according to the script?

Money is any good that is used widely and accepted in transactions involving the transfer of goods or services.

What are the two main categories of money mentioned in the script?

The two main categories of money are money with intrinsic value and money without intrinsic value.

What is commodity money and what are some examples?

Commodity money is money with intrinsic value, such as precious metals like gold and silver, which have the same value as the money they represent due to their intrinsic worth.

Why was the value of commodity money considered to fluctuate unpredictably?

The value of commodity money can fluctuate unpredictably because it is tied to the market value of the underlying commodity, which can change over time.

What was one of the drawbacks of using commodity money like gold in the United States?

One drawback was that gold discoveries, such as those in California, led to an increase in the quantity of money, resulting in severe bouts of inflation.

What is representative money and how does it differ from commodity money?

Representative money is a token or certificate that can be exchanged for the underlying commodity, like gold. It differs from commodity money in that it is a substitute for carrying the actual commodity, making it more convenient to use.

Why did people start to trust paper certificates more than gold over time?

People started to trust paper certificates more than gold because they were easier to carry and use in transactions, and they were backed by the gold stored in vaults.

What is fiat money and how does it differ from representative money?

Fiat money is money that an authority, usually a government, has authorized to be used as a means of exchange without necessarily having intrinsic value. It differs from representative money in that it does not have to be backed by a commodity.

What is bank money and how is it used in transactions?

Bank money is the amount of book credit banks offer to depositors. It is used to make transactions using forms of money with no intrinsic value, such as checkable deposits and travelers checks, which serve as a means of exchanging money.

Why is acceptance the main factor that makes something money?

Acceptance is the main factor because even fiat money issued by the government is accepted as long as it is trusted and not printed excessively, which maintains its value and utility in transactions.

What happens when too much money is printed by the government?

When too much money is printed, it can lead to a decrease in the value of the currency due to inflation, and people may start searching for alternative forms of money.