Types of Money

Money comes in a number of different forms. In the preceding section, we saw apples and oranges used as money. When something with intrinsic value, like precious metals, is used as money, it is called commodity money. It is interesting to think about the enormous variety of goods that can serve as commodity money. Basically, anything that can fulfill the four functions of money, to so some degree, can be used as commodity money.

Barter economies depend on commodity money. When something lacking intrinsic value is used as money, it is called fiat money. This system only works if a government backs the fiat money and regulates its production. In most countries, the cash or currency is a form of fiat money. The advent of fiat money is a great convenience in many ways-- imagine trying to carry a week's pay in apples and oranges.

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