CLASSIFICATION OF MONEY

 Animal Money- In primitive hunting era, animals were used as a common medium of exchange.
Historical evidence shows that cattle occupied a very holy and honorable place in the society. In the
continents of Asia, 11 Africa and Europe, cattle were considered as the standard unit for barter purpose.
In ancient Indian civilization, 'Godhan' (cattle wealth) as a form of money is referred in Artharva Veda as
sacred. Animals like goat and sheep were also considered as sacred. Animal money is quoted as the best
example.
In the early 1400s, Malacca was a busy port handling many ships from East Asia and the Western world.
Malacca was the "halfway house" where traders from the East would come in, replenish and trade with
their counterpart traders from the West. The history of this tin animal money started in the magnificent
days of the Malacca Empire. For trading purposes some form of money had to be used at the ports. Tin
was considered as a precious metal and the Chinese believed that the tin would bring fortune, wealth and
destroy evil spirits. Tin, as medium of exchange was preferred to animal money. This gave birth to the
Tin Animal Money. This form of money prepared by Chinese can be valued in a few denominations,
where 'Kati' was used as unit of measurement.
 Commodity Money- The most primitive forms of money arose unexpectedly, when knowledgeable
traders acknowledged certain commodities as commonly desirable for real use in the society. They could
be used as the payment in any trade. Commodities such as salt, tobacco, cattle and other and other
livestock, furs and other animal hides, grain, gourds, beads, seashells and feathers, were used as
generally accepted medium of exchange. Historical monetary systems have flourished on the basis of
commodity money. Commodity money suffered from the limitations like lack of uniformity, inadequate
store of value, lack of proper transferability and indivisibility.
 Metallic Money- Metallic money refers to coins prepared out of various metals like Gold, Silver,
Bronze, Nickel etc. The standard configuration of the coin should be of given size, shape, weight and
fitness. Its value is certified by an exclusive monopoly of the state. The right of minting the coins vests
with the department concerned of the government of a country. Coins can be mainly of two types:
i. Standard coin refers to a coin whose face value or exchange value is equal to its intrinsic
value. In earlier days, precious metals like gold and silver were regarded as standard coins
and monetary system often referred to them as gold and silver standards.
ii. Token coin refers to a coin' whose face value of exchange value is more than it's intrinsic
value Token coin are usually prepared using cheap metals like Nickel, Copper and Bronze.
The use of the above metals' facilitated the establishment of coin system in the economy. The
right to issue these coins vests with the state, authorities, either the treasury or central bank of
the country. Therefore, the money issued by them is considered as the legal tender. Standard
coins have extensive legal tender and can be transacted only for small amounts. Token coins
have limited legal tender and can be transacted only for small amounts. One major limitation

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 of metallic money is that rapid transactions are difficult and therefore, not feasible. In
addition to this, the face value of the coins may be less than the real value of the coins.
 Convertible Paper Money- The next most important form of money was convertible paper money. It
was first used in China and later spread to medieval Europe. Goldsmiths used to store large quantities of
gold and silver and other precious metals in well-protected vaults and safes. Others began to hire these
facilities to deposit and store their own valuable goods. The goldsmith issued a paper receipt 'convertible'
into these deposits. Gradually, these receipts rather than the deposits were physically exchanged and
paper money was born. Though paper money is widely used, it is not free from disadvantages. There is a
chance of over issue of notes as they can be printed extensively. This leads to more supply of money
which in turn results in inflation and thereby reduces the purchasing power of money. The durability of
paper money is also less than metallic money.
 Fiat Money- , Fiat money comprises of simple currency (bills and coins) issued by the State as a
medium of exchange, unit of account and store of value acceptable within a given jurisdiction. In
countries like United States, Great Britain, Switzerland, Japan or Germany fiat money was accepted
generally as a means of payment. People use the currency to pay their tax bills, because legal tender laws
generally require private creditors to meet contractual debts. People are of the belief that official
government money will continue to be widely acceptable in exchange for moderately predictable
quantity of goods and services in the private markets in the foreseeable future. Regrettably, public
confidence in fiat money is tremendously delicate. The reason lies in its political and economic stability
conditions.
 Bank Money- The money developed in the form of credit money is referred to as bank money. Bank
money constitutes the major part of money supply. Paper money and bank money together constitute
total money supply:
 Super Money- In post-modern economy, another form of money gaining momentum is "Super
money". Super money is based on the changing market value of stocks in the equity stock market. At a
given point of time, market valuation of the stock can be used as 'collateral' for a bank. It can also be
used as loan or line of credit in the form of fiat or deposit money. It is argued that credit cards represent a
form of money, in that the deferred payment, usually 30 days is accepted in exchange until the payment
is made. The whole area of 'monetary theory' is not influenced by the new forms of money that are
emerging in the internet age. Liquidity is the primary characteristic of money. It refers to the time and
cost involved in converting money into desired goods and services.
 Electronic Money- The new developments in computer and telecommunications industry opened the
gates for the formation of a new form of money called the e-money (electronic money). Electronic
money is defined as the digital payment message, which serves as a medium of exchange and store of
value. As there is a danger of theft for paper currency and coins, electronic money evolved as a remedy.
This reduces transportation costs and improves economic efficiency. A new technological improvement

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in the payment system is Electronic Funds Transfer System. (EFTS). According to this technology,
individuals pay through either a debit card reader or a personal computer.

Money becomes more easily transferable from payer to payee using electronic medium. This reduces the
time consuming process of using cheques and paper money. Nowadays monetary institutions like central
banks, commercial banks or corporations transfer funds to other institutions by using EFTS. For this
purpose, people use plastic cards, for example, debit and credit cards (American Express, Visa etc). The
e-money has different names like digital cash, digital money, cyber coins, e-cash, digital token etc. An
important advantage of e-money as compared to earlier forms of money is that the cardholder makes
payment to another without involving the bank by simply placing both the cards in a digital wallet. The
digital wallet writes down the card balance on one card and writes up the card balance on the other by
the same amount. The recent evolution of e-money is significant as it allocates value to a coded digital
message, which is stored on a computer system or a card chip. The issuer guarantees a fixed
reimbursement value.

SIGNIFICANCE OF MONEY IN CAPITALIST ECONOMY

Money plays an important role in shaping the economy of any country by stimulating or even hampering
economic progress irrespective of the type of economy. However, in a capitalist economy, where
allocation of resources, production and distribution of national dividend are all decided by market
mechanism i.e. by the forces of demand and supply. Money plays an important role in this system. It has
substantial effects on output, income, employment, "consumption and economic welfare of the
community at large. Economic planning which is an indispensable aspect is workable both at micro and
macro level with the help of cautious financial planning. This is made possible from the following
equation.
Money → Purchasing power → consumption → economic development Money → Store of
value → investment → employment → economic development.

Money through its purchasing power increases consumption and as a store of value increases
investment, employment and leads to economic development.