Four types of money are fiat money, commodity money, fiduciary money, and commercial bank money.
Here's a breakdown of each type:
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Fiat Money: This is government-issued currency that is not backed by a physical commodity, such as gold or silver, but rather by the government that issued it. Its value is derived from public trust in the issuer. Examples include the U.S. dollar, the Euro, and the Japanese Yen.
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Commodity Money: This is money whose value comes from a commodity of which it is made. The commodity itself has intrinsic value. Throughout history, precious metals like gold and silver have often served as commodity money. Even items like salt or barley have been used.
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Fiduciary Money: This relies on a promise or agreement for its value. It's not intrinsically valuable like commodity money, nor is it legal tender declared by a government like fiat money. Examples include checks (relying on funds in a bank account) and banknotes issued by private banks in the past (relying on the bank's promise to redeem them for precious metals).
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Commercial Bank Money: This refers to the money created through lending activities in the banking system. When banks provide loans, they create new deposits, thereby increasing the money supply. Credit and loans are core components of this type of money.
