2.5 Types of Money

Money encompasses two main categories: physical and digital, each serving distinct purposes in financial transactions and economies.

Physical Money:

1. Fiat Money: Issued by governments, fiat money includes paper bills and coins accepted as legal tender. Its value derives from government decree rather than intrinsic worth.

2. Representative Money: Represents a claim on a physical commodity, historically such as gold or silver. Examples include silver certificates that could be exchanged for silver.

3. Commodity Money: Physical objects with intrinsic value and widespread acceptance as a medium of exchange, such as gold and silver.

Digital Currencies:

Digital currencies facilitate online transactions and include various types:

1. Electronic Currencies: Digital counterparts of traditional currencies like dollars or euros, used for online purchases via digital payment infrastructure.

2. Stablecoins: Designed to maintain a stable value relative to a fiat currency or asset (e.g., US dollar).

3. Cryptocurrencies: A type of digital currency governed by cryptographic protocols, which can be decentralized or centralized.