Money

Introduction

• Money is anything that has general acceptance as a means of Payment. It can also be defined as any item or records acceptable for payments of goods and services. 
• Money is a medium of exchange in general. It is also referred to as currency. It is a medium in which the prices of various goods and services are expressed.

Functions of Money

• It is used as a medium of exchange.

• It gives a common measure of value.

• It is used as a standard of deferred payments.

• It can also be used as a store of value.

Essential Properties of Money

To fulfil its various functions, money must have certain properties, which are as follows:

• Fungibility: Anything which is capable of interchanging unit by unit within itself or its individual units must be capable of mutual substitution (i.e., interchangeability).
• Durability: Able to withstand the repeated use.
• Portability: Easily carried and transported.
• Cognizability: Its value must be easily identified.
• Stability of Value: Its value should not fluctuate.

Types of Money

• Commodity Money:  The commodity money derives its value from the commodity out of which it is made.  The commodity itself represents money, for instance, commodities that have been used as a medium of exchange include gold, silver, copper, salt, precious stones, etc.

• Representative Money:  It includes token coins or any other physical tokens like certificates, that can be reliably exchanged for a fixed amount/quantity of a commodity like gold and silver.  It is used against the backing of equivalent values of gold and silver.

• Fiat Money:  It is also known as the fiat currency and its value is not derived from any intrinsic value or guarantee that it can be converted into a valuable commodity like gold.  It  derives its value, which is only based on Government order.

• Token money: Token Money is one whose value in money is much more than its value

as a commodity. For example, coins.

Legal Tender of Money

• Limited Legal Tender Money: This is a form of money, which can be paid in discharge of a debt up to a certain limit and beyond this limit, a person may refuse to accept the payment and no legal action can be taken against. Coins are limited legal tender in India.

• Unlimited Legal Tender Money: In this form of money, which can be paid in discharge of a debt of any amount. A person who refuses to accept this money a legal action can be taken against. Paper notes/currency are unlimited legal tender in India.

Non Legal Tender of Money

• It is a form of money, which is generally accepted, but legally is not bound to accept it. Such as cheques, bank drafts, bills of exchange, postal orders etc. are not legal tenders and are accepted only at the option of the creditor, lender, or seller. 
• It is also called the optional money because it does not have legal backing and their acceptance is optional.