Money Substitutes

02.11.2021
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Money Substitutes

Money has always been seen as the most important aspect of human life. From times immemorial it has been considered to be the ultimate key to success. The value of money has always influenced humans to some extent. Money is any actual tangible document or account that is normally accepted as payment for products and services and payment of debts, including taxes, from a particular individual or family as a form of compensation for services rendered and/or debts repaid in a certain economic context.

 

Money is created by governments through the action of the central bank. The central bank grants loans to banks and other creditors to provide them with the money needed to make payments on their financial obligations. Usually the government finances its programs through the use of currency in its various denominations.

 

Cryptocurrency can be thought of as digital money that circulates through transactions instead of like traditional money. As in the case of commodities and currencies, the value of Cryptocurrencies changes rapidly according to supply and demand in the market. There are several examples of such types of currencies. An example is the US dollar against the British pound. The British Pound depreciates when the US Dollar increases in value while vice versa.

 

A good illustration of how commodities and currencies are traded is during the gold exchange market. During times of financial crisis, the market-determined money supply is reduced causing a reduction in the price of gold. Money flows between buyers and sellers. Money is a medium of exchange used in all kinds of transactions. Money can be a good medium of exchange if it is a fiat currency, a national asset like gold and currency, or a store of value like bank notes, bond, stock certificates, and commodities.

 

The definition of Money is the actual possession of an asset owing direct or indirect value, usually representing some definite quantity of wealth, as defined by a government or a central bank. Money is created through the issuing of legal tender, by governments, banks, or other monetary institutions, and by public authorities in compliance with their domestic legislation. Money is regarded as a legal tender instrument when it is issued by a government, banks, or other issuers at the request of public generally or on the request of specific individuals. Private money may be a form of commodity and/or is debt security.

 

Money has three different categories: standard money, bank notes, and certificates of deposit (CDs). The most widely used medium of exchange in the modern age is the national currency. This money is known as’Fiat Money’ or as’Fiat Standard Money’. This money is created through the central banks by legal tender and is normally recognized by all countries in which it is traded. The money of this class is known as ‘Fiat Money’ because it is generally recognized as legal tender in countries where the country exercises free trade.

 

Bank notes are pieces of paper, secured by the ownership of the actual bank. These pieces of paper are distinctively called ‘Coins of Exchange’ and are usually listed on the books of banks and exchanged regularly with one another. Their purchase and sale are governed by the existing market rate. Unlike Fiat Money, certificates of deposit (CDs) are not issued by the issuer of money but are stored as a debt security.

 

The third category of money substitutes is fiduciary media. Money is the most important medium of exchange in any fiduciary media. It plays the role of a medium of communication between two parties to the transactions, and mediator between the agent and the public. For example, a manufacturer issues its stock in the form of bank notes and sells them to the end user for a price that reflects its market value. This is the traditional model of a fiduciary media transaction.

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