View source for Money

{{Other uses}}
{{pp-semi-indef|small=yes}}
{{Capitalism|Concepts}}
[[File:ClientCardSample.png|thumb|right|A sample picture of a fictional ATM card. The largest part of the world's money exists only as accounting numbers which are transferred between financial computers. Various plastic cards and other devices give individual consumers the power to electronically transfer such money to and from their bank accounts, without the use of currency.]]

'''Money''' is any item or verifiable record that is generally accepted as [[payment]] for [[goods and services]] and repayment of [[debt]]s, such as [[taxes]], in a particular country or socio-economic context.<ref>{{cite book |title=The Economics of Money, Banking, and Financial Markets (Alternate Edition) |last=Mishkin |first=Frederic S. |authorlink=Frederic Mishkin |year=2007 |publisher=Addison Wesley |location=Boston |isbn=978-0-321-42177-7 |page=8}}</ref><ref>[https://books.google.com/books?id=MDU-NTEJziMC&pg=PA47 ''What Is Money?''] By John N. Smithin. Retrieved July-17-09.</ref><ref>{{cite web |url=http://www.dictionaryofeconomics.com/article?id=pde2008_M000217&edition=current&q=money&topicid=&result_number=5 |title=money : The New Palgrave Dictionary of Economics |website=The New Palgrave Dictionary of Economics |accessdate=18 December 2010}}</ref> The main functions of money are distinguished as: a [[medium of exchange]], a [[unit of account]], a [[store of value]] and sometimes, a [[standard of deferred payment]].<ref name="mankiw">{{cite book |title=Macroeconomics |last=Mankiw |first=N. Gregory |authorlink=N. Gregory Mankiw |year=2007 |edition=6th |pages=22–32 |chapter=2 |publisher=Worth Publishers |location=New York |isbn=978-0-7167-6213-3}}</ref><ref name="greco">[[Thomas H. Greco, Jr.|T.H. Greco]]. ''Money: Understanding and Creating Alternatives to Legal Tender'', White River Junction, Vt: Chelsea Green Publishing (2001). {{ISBN|1-890132-37-3}}</ref> Any item or verifiable record that fulfils these functions can be considered as money.

Money is historically an [[Emergence#Money|emergent market phenomenon]] establishing a [[commodity money]], but nearly all contemporary money systems are based on [[fiat money]].<ref name="mankiw"/> Fiat money, like any check or note of debt, is without [[use value]] as a physical commodity. It derives its value by being declared by a government to be [[legal tender]]; that is, it must be accepted as a form of payment within the boundaries of the country, for "all debts, public and private".<ref>{{cite web |title=The Etymology of Money |url=http://www.thewallstreetpsychologist.com/recent_posts/the-etymology-of-money/ |website=Thewallstreetpsychologist.com |accessdate=24 February 2015 |deadurl=yes |archiveurl=https://web.archive.org/web/20150403151319/http://www.thewallstreetpsychologist.com/recent_posts/the-etymology-of-money/ |archivedate=3 April 2015 |df=}} </ref> [[Counterfeit money]] can cause [[good money]] to lose its value.

The [[money supply]] of a country consists of [[currency]] ([[banknote]]s and [[coin]]s) and, depending on the particular definition used, one or more types of [[bank money]] (the balances held in [[transactional account|checking accounts]], [[savings account]]s, and other types of [[bank accounts]]). Bank money, which consists only of records (mostly computerized in modern banking), forms by far the largest part of [[broad money]] in developed countries.<ref>{{cite book |last1=Boyle |first1=David |authorlink1=David Boyle (author) |title=The Little Money Book |publisher=The Disinformation Company |year=2006 |page=37 |isbn=978-1-932857-26-9}}</ref><ref>{{cite web |title=History of Money |url=http://zzaponline.com/history-of-money/ |website=Zzaponline.com |accessdate=24 February 2015}}</ref><ref>Bernstein, Peter, ''A Primer on Money and Banking, and Gold'', Wiley, 2008 edition, pp. 29–39</ref>

== Etymology ==
The word "money" is believed to originate from a temple of [[Juno (mythology)|Juno]], on [[Capitoline]], one of Rome's seven hills.  In the ancient world Juno was often associated with money. The temple of [[Juno Moneta]] at Rome was the place where the mint of Ancient Rome was located.<ref>D'Eprio, Peter & Pinkowish, Mary Desmond (1998). ''What Are the Seven Wonders of the World?'' First Anchor Books, p. 192. {{ISBN|0-385-49062-3}}</ref> The name "Juno" may derive from the Etruscan goddess [[Uni (mythology)|Uni]] (which means "the one", "unique", "unit", "union", "united") and "Moneta" either from the Latin word "monere" (remind, warn, or instruct) or the Greek word "moneres" (alone, unique).

In the Western world, a prevalent term for coin-money has been ''[[wikt:specie|specie]]'', stemming from Latin ''in specie'', meaning 'in kind'.<ref>{{cite web |url=http://www.etymonline.com/index.php?search=specie&searchmode=phrase |title=Online Etymology Dictionary |publisher=etymonline.com |accessdate=2009-04-20}}</ref>

== History ==
{{Main|History of money}}
[[File:BMC 06.jpg|thumb|left|A 640 BC one-third [[stater]] [[electrum]] coin from [[Lydia#First coinage|Lydia]]]]

The use of [[barter]]-like methods may date back to at least 100,000 years ago, though there is no evidence of a society or economy that relied primarily on barter.<ref>[[Marcel Mauss|Mauss, Marcel]]. ''The Gift: The Form and Reason for Exchange in Archaic Societies''. pp. 36–37.</ref> Instead, non-monetary societies operated largely along the principles of [[gift economy]] and [[debt]].<ref>{{cite web |url=http://www.nakedcapitalism.com/2011/08/what-is-debt-%E2%80%93-an-interview-with-economic-anthropologist-david-graeber.html |title=What is Debt? – An Interview with Economic Anthropologist David Graeber |publisher=[[Naked Capitalism]]|date=2011-08-26 }}</ref><ref>David Graeber: ''Debt: The First 5000 Years'', Melville 2011. Cf. [http://socialtextjournal.org/a-history-of-debt/ review]</ref> When barter did in fact occur, it was usually between either complete strangers or potential enemies.<ref name="Graeber, David pp. 153-154">{{cite book |author=David Graeber |title=Toward an anthropological theory of value: the false coin of our own dreams |url=https://books.google.com/books?id=uo8tttilAlQC&pg=PA153 |accessdate=10 February 2011 |year=2001 |publisher=Palgrave Macmillan |isbn=978-0-312-24045-5 |pages=153–154}}</ref>

Many cultures around the world eventually developed the use of [[commodity money]]. The Mesopotamian [[shekel]] was a unit of weight, and relied on the mass of something like 160 [[Grain (unit)|grains]] of [[barley]].<ref>Kramer, ''History Begins at Sumer'', pp. 52–55.</ref> The first usage of the term came from [[Mesopotamia]] circa 3000 BC.  Societies in the Americas, Asia, Africa and Australia used [[shell money]] – often, the shells of the [[cowry]] (''Cypraea moneta L.'' or ''C. annulus L.''). According to [[Herodotus]], the [[Lydians]] were the first people to introduce the use of [[gold coin|gold]] and [[silver coin]]s.<ref>Herodotus. ''Histories'', I, 94</ref> It is thought by modern scholars that these first stamped [[coins]] were minted around 650–600 BC.<ref>{{cite web |url=http://rg.ancients.info/lion/article.html |author=Goldsborough, Reid |title=World's First Coin |publisher=rg.ancients.info |date=2003-10-02 |accessdate=2009-04-20}}</ref>

[[File:Jiao zi.jpg|thumb|upright|Song Dynasty ''Jiaozi'', the world's earliest paper money]]

The system of [[commodity money]] eventually evolved into a system of [[representative money]].{{Citation needed|date=December 2009}} This occurred because gold and silver merchants or banks would issue receipts to their depositors – redeemable for the [[commodity money]] deposited. Eventually, these receipts became generally accepted as a means of payment and were used as money. Paper money or [[banknotes]] were first used in China during the [[Song dynasty]]. These banknotes, known as "[[Jiaozi (currency)|jiaozi]]", evolved from [[promissory notes]] that had been used since the 7th century. However, they did not displace commodity money, and were used alongside coins. In the 13th century, paper money became known in Europe through the accounts of travelers, such as [[Marco Polo]] and [[William of Rubruck]]<!-- Giljom de Rubruk -->.<ref>{{cite book |last=Moshenskyi |first=Sergii |title=History of the weksel: Bill of exchange and promissory note |year=2008 |isbn=978-1-4363-0694-2 |page=55}}</ref> Marco Polo's account of paper money during the [[Yuan dynasty]] is the subject of a chapter of his book, ''[[The Travels of Marco Polo]]'', titled "[[s:The Travels of Marco Polo/Book 2/Chapter 24|How the Great Kaan Causeth the Bark of Trees, Made Into Something Like Paper, to Pass for Money All Over his Country]]."<ref name="Marco Polo">{{cite book |author=Marco Polo |title=The Travels of Marco Polo, a Venetian, in the Thirteenth Century: Being a Description, by that Early Traveller, of Remarkable Places and Things, in the Eastern Parts of the World |url=https://books.google.com/books?id=JetQAAAAcAAJ&pg=PA353 |accessdate=19 September 2012 |year=1818 |pages=353–355}}</ref> Banknotes were first issued in Europe by [[Stockholms Banco]] in 1661, and were again also used alongside coins. The [[gold standard]], a [[monetary system]] where the medium of exchange are paper notes that are convertible into pre-set, fixed quantities of gold, replaced the use of gold coins as currency in the 17th–19th centuries in Europe. These gold standard notes were made [[legal tender]], and redemption into gold coins was discouraged. By the beginning of the 20th century almost all countries had adopted the gold standard, backing their legal tender notes with fixed amounts of gold.

After [[World War II]] and the [[Bretton Woods Conference]], most countries adopted fiat currencies that were fixed to the [[United States dollar|U.S. dollar]]. The U.S. dollar was in turn fixed to gold. In 1971 the U.S. government suspended the convertibility of the U.S. dollar to gold. After this many countries de-pegged their currencies from the U.S. dollar, and most of the world's currencies became unbacked by anything except the governments' fiat of legal tender and the ability to convert the money into goods via payment. According to proponents of [[Modern Money Theory|modern money theory]], fiat money is also backed by taxes. By imposing taxes, states create demand for the currency they issue.<ref>{{cite book |last1=Wray |first1=L. Randall |title=Modern money theory: a primer on macroeconomics for sovereign monetary systems |date=2012 |publisher=Palgrave Macmillan |location=Houndmills, Basingstoke, Hampshire |isbn=978-0230368897 |pages=45–50}}</ref>

== Functions ==
{{also|monetary economics}}
{{Economics sidebar}}
In ''Money and the Mechanism of Exchange (1875)'', [[William Stanley Jevons]] famously analyzed money in terms of four functions: a ''[[medium of exchange]]'', a ''common measure of value'' (or [[unit of account]]), a ''standard of value'' (or [[standard of deferred payment]]), and a ''[[store of value]]''. By 1919, Jevons's four functions of money were summarized in the [[couplet]]:
:Money's a matter of functions four,
:A Medium, a Measure, a Standard, a Store.<ref name="a_milnes">{{cite book |last=Milnes |first=Alfred |title=The economic foundations of reconstruction |publisher=Macdonald and Evans |year=1919 |page=55}}</ref>

This couplet would later become widely popular in macroeconomics textbooks.<ref name="dwivedi">{{cite book |last=Dwivedi |first=DN |title=Macroeconomics: Theory and Policy |publisher=Tata McGraw-Hill |year=2005 |page=182}}</ref>  Most modern textbooks now list only three functions, that of [[medium of exchange]], [[unit of account]], and [[store of value]], not considering a standard of deferred payment as a distinguished function, but rather subsuming it in the others.<ref name="mankiw"/><ref name="krugman">Krugman, Paul & Wells, Robin, ''Economics'', Worth Publishers, New York (2006)</ref><ref name="abel_bernanke">{{cite book |last=Abel |first=Andrew |last2=Bernanke |first2=Ben |authorlink2=Ben Bernanke |title=Macroeconomics |publisher=Pearson |year=2005 |edition=5th |pages=266–269 |chapter=7 |isbn=978-0-201-32789-2}}</ref>

There have been many historical disputes regarding the combination of money's functions, some arguing that they need more separation and that a single unit is insufficient to deal with them all. One of these arguments is that the role of money as a [[medium of exchange]] is in conflict with its role as a [[store of value]]: its role as a store of value requires holding it without spending, whereas its role as a medium of exchange requires it to circulate.<ref name="greco" />  Others argue that storing of value is just deferral of the exchange, but does not diminish the fact that money is a medium of exchange that can be transported both across space and time. The term "financial capital" is a more general and inclusive term for all liquid instruments, whether or not they are a uniformly recognized tender.

=== Medium of exchange ===
{{Main|Medium of exchange}}

When money is used to intermediate the exchange of goods and services, it is performing a function as a ''medium of exchange''. It thereby avoids the inefficiencies of a barter system, such as the "[[coincidence of wants]]" problem.  Money's most important usage is as a method for comparing the values of dissimilar objects.

=== Measure of value ===
{{Main|Unit of account}}

A ''unit of account'' (in economics)<ref>{{cite web |url=https://www.boundless.com/business/textbooks/boundless-business-textbook/the-functions-of-money-and-banking-21/money-as-a-tool-123/functions-of-money-568-3194/ |title=Functions of Money |website=[[Boundless (company)|boundless.com]]|date=2017-10-11 }}</ref> is a standard numerical monetary unit of measurement of the market value of goods, services, and other transactions. Also known as a "measure" or "standard" of relative worth and deferred payment, a unit of account is a necessary prerequisite for the formulation of commercial agreements that involve debt.

Money acts as a standard measure and common denomination of trade. It is thus a basis for quoting and bargaining of prices. It is necessary for developing efficient accounting systems.

=== Standard of deferred payment ===
{{Main|Standard of deferred payment}}
While ''standard of deferred payment'' is distinguished by some texts,<ref name="greco" /> particularly older ones, other texts subsume this under other functions.{{r|"mankiw"|"krugman"|"abel_bernanke"}}{{clarify|date=December 2018|reason=Specify which other functions are sometimes said to subsume this function, and in that way.}} A "standard of deferred payment" is an accepted way to settle a [[debt]] – a unit in which debts are denominated, and the status of money as [[legal tender]], in those jurisdictions which have this concept, states that it may function for the discharge of debts. When debts are denominated in money, the real value of debts may change due to inflation and [[deflation]], and for sovereign and international debts via [[debasement]] and [[devaluation]].

=== Store of value ===
{{Main|Store of value}}
To act as a ''store of value'', a money must be able to be reliably saved, stored, and retrieved – and be predictably usable as a medium of exchange when it is retrieved. The value of the money must also remain stable over time. Some have argued that inflation, by reducing the value of money, diminishes the ability of the money to function as a store of value.<ref name="mankiw"/>

==Properties==
To fulfill its various functions, money must have certain properties:<ref>{{cite web |last1=Desjardins |first1=Jeff |title=Infographic: The Properties of Money |url=http://money.visualcapitalist.com/infographic-the-properties-of-money/ |publisher=The Money Project |accessdate=18 July 2017 |date=December 15, 2015}}</ref>
* [[Fungibility]]: its individual units must be capable of mutual substitution (i.e., interchangeability).
* [[Durability]]: able to withstand repeated use.
* Portability: easily carried and transported.
* Cognizability: its value must be easily identified.
* Stability of value: its value should not fluctuate.

== Money supply ==
{{Main|Money supply}}
[[File:MB, M1 and M2 aggregates from 1981 to 2012.png|upright=1.5|thumb|right|Money Base, M1 and M2 in the U.S. from 1981 to 2012]]
[[File:RIAN archive 978776 Printing paper money at Goznak factory in Perm.jpg|thumb|right|Printing paper money at a printing press in [[Perm]]]]
In economics, money is any [[Instrument (finance)|financial instrument]] that can fulfill the functions of money (detailed above). These financial instruments together are collectively referred to as the [[money supply]] of an economy. In other words, the money supply is the number of financial instruments within a specific economy available for purchasing goods or services. Since the money supply consists of various financial instruments (usually currency, demand deposits and various other types of deposits), the amount of money in an economy is measured by adding together these financial instruments creating a ''monetary aggregate''.

[[Modern monetary theory]] distinguishes among different ways to measure the stock of money or money supply, reflected in different types of monetary aggregates, using a categorization system that focuses on the [[Market liquidity|liquidity]] of the financial instrument used as money. The most commonly used monetary aggregates (or types of money) are conventionally designated M1, M2 and M3. These are successively larger aggregate categories: M1 is currency (coins and bills) plus [[demand deposit]]s (such as checking accounts); M2 is M1 plus [[savings account]]s and [[time deposit]]s under $100,000; and M3 is M2 plus larger time deposits and similar institutional accounts. M1 includes only the most liquid financial instruments, and M3 relatively illiquid instruments. The precise definition of M1, M2 etc. may be different in different countries.

Another measure of money, M0, is also used; unlike the other measures, it does not represent actual [[purchasing power]] by firms and households in the economy.{{Citation needed|date=March 2014}} M0 is [[base money]], or the amount of money actually issued by the [[central bank]] of a country. It is measured as currency plus deposits of banks and other institutions at the central bank. M0 is also the only money that can satisfy the [[reserve requirements]] of [[commercial banks]].

=== Creation of money ===
In current economic systems, money is created by two procedures:

'''Legal tender''', or '''narrow money''' (M0) is the cash money created by a Central Bank by minting coins and printing banknotes.

'''Bank money''', or '''broad money''' (M1/M2) is the money created by private banks through the recording of loans as deposits of borrowing clients, with partial support indicated by the ''cash ratio''. Currently, bank money is created as electronic money.

In most countries, the majority of money is mostly created as M1/M2 by commercial banks making loans. Contrary to some popular misconceptions, banks do not act simply as intermediaries, lending out deposits that savers place with them, and do not depend on central bank money (M0) to create new loans and deposits.<ref>{{Cite web|url=https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/money-creation-in-the-modern-economy|title=Money creation in the modern economy {{!}} Bank of England|website=www.bankofengland.co.uk|language=en|access-date=2018-01-14}}</ref>

=== Market liquidity ===
{{Main|Market liquidity}}
"Market liquidity" describes how easily an item can be traded for another item, or into the common currency within an economy. Money is the most liquid asset because it is universally recognised and accepted as the common currency. In this way, money gives consumers the [[liberty|freedom]] to trade goods and services easily without having to barter.

Liquid financial instruments are easily [[tradable]] and have low [[transaction cost]]s. There should be no (or minimal) [[Bid/offer spread|spread]] between the prices to buy and sell the instrument being used as money.

== Types ==
Currently, most modern monetary systems are based on fiat money. However, for most of history, almost all money was commodity money, such as gold and silver coins. As economies developed, commodity money was eventually replaced by [[representative money]], such as the [[gold standard]], as traders found the physical transportation of gold and silver burdensome. Fiat currencies gradually took over in the last hundred years, especially since the breakup of the [[Bretton Woods system]] in the early 1970s.

=== Commodity ===
{{Main|Commodity money}}
[[File:1914 Sydney Half Sovereign - St. George.jpg|thumb|upright|A 1914 British [[Sovereign (British coin)|gold sovereign]]]]
Many items have been used as [[commodity money]] such as naturally scarce [[precious metal]]s, [[conch shell]]s, [[barley]], beads etc., as well as many other things that are thought of as having [[Intrinsic theory of value|value]]. Commodity money value comes from the commodity out of which it is made. The commodity itself constitutes the money, and the money is the commodity.<ref name="Mises">Mises, Ludwig von. ''[[The Theory of Money and Credit]]'', (Indianapolis, IN: [[Liberty Fund, Inc.]], 1981), trans. H. E. Batson. Ch.3 Part One: The Nature of Money, Chapter 3: The Various Kinds of Money, Section 3: Commodity Money, Credit Money, and Fiat Money, Paragraph 25.</ref> Examples of commodities that have been used as mediums of exchange include gold, silver, copper, rice, [[Wampum]], salt, peppercorns, large stones, decorated belts, shells, alcohol, cigarettes, cannabis, candy, etc. These items were sometimes used in a metric of perceived value in conjunction to one another, in various commodity valuation or [[price system]] economies. Use of commodity money is similar to barter, but a commodity money provides a simple and automatic [[unit of account]] for the commodity which is being used as money. Although some [[gold coins]] such as the [[Krugerrand]] are considered [[legal tender]], there is no record of their face value on either side of the coin. The rationale for this is that emphasis is laid on their direct link to the prevailing value of their [[Millesimal fineness|fine gold]] content.<ref>[http://www.randrefinery.com/products_krugerrands.htm randRefinery.com]. Retrieved July-18-09.</ref>
[[American Gold Eagle|American Eagles]] are imprinted with their gold content and legal tender [[face value]].<ref name="usmint.gov"/>

=== Representative ===
{{Main|Representative money}}
In 1875, the British economist [[William Stanley Jevons]] described the money used at the time as "[[representative money]]". Representative money is money that consists of [[token coin]]s, [[paper money]] or other physical tokens such as certificates, that can be reliably exchanged for a fixed quantity of a commodity such as gold or silver. The value of representative money stands in direct and fixed relation to the commodity that backs it, while not itself being composed of that commodity.<ref name="Jevons">{{cite book |last=Jevons |first=William Stanley |title=Money and the Mechanism of Exchange |year=1875 |chapter=XVI: Representative Money |chapter-url=http://oll.libertyfund.org/?option=com_staticxt&staticfile=show.php%3Ftitle=318&chapter=9990&layout=html&Itemid=27 |accessdate=2009-06-28 |isbn=978-1-59605-260-4}}</ref>

=== Fiat ===
{{Main|Fiat money}}
[[File:2006 AEGold Proof Rev.png|thumb|upright|Gold coins are an example of legal tender that are traded for their intrinsic value, rather than their face value.]]
Fiat money or fiat currency is money whose value is not derived from any intrinsic value or guarantee that it can be converted into a valuable commodity (such as gold). Instead, it has value only by government order (fiat). Usually, the government declares the fiat currency (typically notes and coins from a central bank, such as the [[Federal Reserve System]] in the U.S.) to be [[legal tender]], making it unlawful not to accept the fiat currency as a means of repayment for all debts, public and private.<ref name="www-personal.umich">{{cite web |author=Deardorff, Prof. Alan V. |year=2008 |title=Deardorff's Glossary of International Economics |url=http://www-personal.umich.edu/~alandear/glossary/f.html |publisher=Department of Economics, University of Michigan |accessdate=2008-07-12}}</ref><ref name="BlackHenry">Black, Henry Campbell (1910). ''A Law Dictionary Containing Definitions Of The Terms And Phrases Of American And English Jurisprudence, Ancient And Modern'', p. 494. West Publishing Co. [[Black’s Law Dictionary]] defines the word "fiat" to mean "a short order or warrant of a Judge or magistrate directing some act to be done; an authority issuing from some competent source for the doing of some legal act"</ref>

Some [[bullion coins]] such as the [[Australian Gold Nugget]] and [[American Gold Eagle|American Eagle]] are legal tender, however, they trade based on the [[market price]] of the metal content as a [[commodity]], rather than their legal tender [[face value]] (which is usually only a small fraction of their bullion value).<ref name="usmint.gov">[http://www.usmint.gov/mint_programs/american_eagles/index.cfm?flash=no&action=American_Eagle_Gold usmiNT.gov]. Retrieved July-18-09.</ref><ref>{{cite news |title=Crazy as a Gold Bug |author=Tom Bethell |work=New York |date=1980-02-04 |volume=13 |issue=5 |page=34 |publisher=New York Media |url=https://books.google.com/books?id=6OUCAAAAMBAJ&pg=PA33&dq=silver+krugerrand}} Retrieved July-18-09</ref>

Fiat money, if physically represented in the form of currency (paper or coins) can be accidentally damaged or destroyed. However, fiat money has an advantage over representative or commodity money, in that the same laws that created the money can also define rules for its replacement in case of damage or destruction. For example, the U.S. government will replace mutilated [[Federal Reserve Note]]s (U.S. fiat money) if at least half of the physical note can be reconstructed, or if it can be otherwise proven to have been destroyed.<ref>[https://web.archive.org/web/20091018013943/http://www.bep.treas.gov/section.cfm/8/39 Shredded & Mutilated: Mutilated Currency], ''Bureau of Engraving and Printing''. Retrieved 2007-05-09.</ref> By contrast, commodity money which has been lost or destroyed cannot be recovered.

=== Coinage ===
{{main|Coin}}
These factors led to the shift of the store of value being the metal itself: at first silver, then both silver and gold, and at one point there was bronze as well. Now we have copper coins and other non-precious metals as coins. Metals were mined, weighed, and stamped into coins. This was to assure the individual taking the coin that he was getting a certain known weight of precious metal. Coins could be counterfeited, but they also created a new [[unit of account]], which helped lead to banking. [[Archimedes' principle]] provided the next link: coins could now be easily tested for their [[Fineness|fine]] weight of metal, and thus the value of a coin could be determined, even if it had been shaved, debased or otherwise tampered with (see [[Numismatics]]).

In most major economies using coinage, copper, silver and gold formed three tiers of coins. Gold coins were used for large purchases, payment of the military and backing of state activities. Silver coins were used for midsized transactions, and as a unit of account for taxes, dues, contracts and fealty, while copper coins represented the coinage of common transaction. This system had been used in ancient [[Indian coinage|India]] since the time of the [[Mahajanapadas]]. In Europe, this system worked through the [[medieval]] period because there was virtually no new gold, silver or copper introduced through mining or conquest.{{Citation needed|date=March 2010}} Thus the overall ratios of the three coinages remained roughly equivalent.

=== Paper ===
{{main|Banknote}}
[[File:Hui zi.jpg|thumb|upright|[[Huizi (currency)|Huizi currency]], issued in 1160]]
In [[History of China|premodern China]], the need for credit and for circulating a medium that was less of a burden than exchanging thousands of [[Coin|copper coins]] led to the introduction of [[paper money]], commonly known today as "banknote"s. This economic phenomenon was a slow and gradual process that took place from the late [[Tang dynasty]] (618–907) into the [[Song dynasty]] (960–1279). It began as a means for merchants to exchange heavy coinage for [[receipt]]s of deposit issued as [[promissory note]]s from shops of wholesalers, notes that were valid for temporary use in a small regional territory. In the 10th century, the [[Song dynasty]] government began circulating these notes amongst the traders in their [[monopolized]] salt industry. The Song government granted several shops the sole right to issue banknotes, and in the early 12th century the government finally took over these shops to produce state-issued currency. Yet the banknotes issued were still regionally valid and temporary; it was not until the mid 13th century that a standard and uniform government issue of paper money was made into an acceptable nationwide currency. The already widespread methods of [[woodblock printing]] and then [[Pi Sheng]]'s [[movable type]] printing by the 11th century was the impetus for the massive production of paper money in premodern China.
[[File:Money poster.JPG|thumb|left|Paper money from different countries]]
At around the same time in the [[Islamic Golden Age|medieval Islamic world]], a vigorous [[monetary economy]] was created during the 7th–12th centuries on the basis of the expanding levels of circulation of a stable high-value currency (the [[dinar]]). Innovations introduced by Muslim economists, traders and merchants include the earliest uses of [[Credit (finance)|credit]],<ref name=Banaji>{{cite journal |last=Banaji |first=Jairus |year=2007 |title=Islam, the Mediterranean and the Rise of Capitalism |journal=Historical Materialism |volume=15 |issue=1 |pages=47–74 |issn=1465-4466 |doi=10.1163/156920607X171591 |bibcode= |oclc=440360743 |url=https://www.scribd.com/doc/14246569/Banaji-Jairus-Islam-The-Mediterranean-and-the-Rise-of-Capitalism |accessdate=August 28, 2010 |deadurl=yes |archiveurl=https://web.archive.org/web/20090523015524/http://www.scribd.com/doc/14246569/Banaji-Jairus-Islam-The-Mediterranean-and-the-Rise-of-Capitalism |archivedate=May 23, 2009}}</ref> [[cheque]]s, [[promissory note]]s,<ref name="Medieval Trade in the Mediterranean World: Illustrative Documents">{{cite book |last1=Lopez |first1=Robert Sabatino |authorlink1=Roberto Sabatino Lopez |last2=Raymond |first2=Irving Woodworth |last3=Constable |first3=Olivia Remie |title=Medieval trade in the Mediterranean world: Illustrative documents |series=Records of Western civilization.; Records of civilization, sources and studies, no. 52 |year=2001 |origyear=1955 |publisher=[[Columbia University Press]] |location=New York |url=http://cup.columbia.edu/bookpreview/978-0-231-12356-3/ |isbn=978-0-231-12357-0 |oclc=466877309 |deadurl=yes |archiveurl=https://web.archive.org/web/20120309144011/http://cup.columbia.edu/bookpreview/978-0-231-12356-3/ |archivedate=March 9, 2012}}</ref> [[savings account]]s, [[transactional account]]s, loaning, [[trusts]], [[exchange rate]]s, the transfer of credit and [[debt]],<ref name=Labib>{{cite journal |last=Labib |first=Subhi Y. |date=March 1969 |title=Capitalism in Medieval Islam |journal=The Journal of Economic History |volume=29 |issue=1 |pages=79–86 |issn=0022-0507 |oclc=478662641 |jstor=2115499}}</ref> and [[banking institution]]s for loans and [[deposit account|deposits]].<ref name=Labib />

In Europe, paper money was first introduced in [[Sweden]] in 1661. Sweden was rich in copper, thus, because of copper's low value, extraordinarily big coins (often weighing several kilograms) had to be made. The advantages of paper currency were numerous: it reduced transport of gold and silver, and thus lowered the risks; it made loaning gold or silver at interest easier, since the specie (gold or silver) never left the possession of the lender until someone else redeemed the note; and it allowed for a division of currency into credit and specie backed forms. It enabled the sale of [[stock]] in [[joint stock companies]], and the redemption of those [[shares]] in paper.

However, these advantages held within them disadvantages. First, since a note has no intrinsic value, there was nothing to stop issuing authorities from printing more of it than they had specie to back it with. Second, because it increased the money supply, it increased inflationary pressures, a fact observed by [[David Hume]] in the 18th century. The result is that paper money would often lead to an inflationary bubble, which could collapse if people began demanding hard money, causing the demand for paper notes to fall to zero. The printing of paper money was also associated with wars, and financing of wars, and therefore regarded as part of maintaining a [[standing army]]. For these reasons, paper currency was held in suspicion and hostility in Europe and America. It was also addictive, since the speculative profits of trade and capital creation were quite large. Major nations established [[mint (coin)|mints]] to print money and mint coins, and branches of their treasury to collect taxes and hold gold and silver stock.

At this time both silver and gold were considered [[legal tender]], and accepted by governments for taxes. However, the [[Gresham's law|instability in the ratio]] between the two grew over the course of the 19th century, with the increase both in supply of these metals, particularly silver, and of trade. This is called [[bimetallism]] and the attempt to create a bimetallic standard where both gold and silver backed currency remained in circulation occupied the efforts of inflationists. Governments at this point could use currency as an instrument of policy, printing paper currency such as the [[United States Note|United States greenback]], to pay for military expenditures. They could also set the terms at which they would redeem notes for specie, by limiting the amount of purchase, or the minimum amount that could be redeemed.

[[File:Billets de 5000.jpg|thumb|upright|Banknotes of different currencies with a face value of 5000]]
By 1900, most of the industrializing nations were on some form of gold standard, with paper notes and silver coins constituting the circulating medium. Private banks and governments across the world followed [[Gresham's law]]: keeping gold and silver paid, but paying out in notes. This did not happen all around the world at the same time, but occurred sporadically, generally in times of war or financial crisis, beginning in the early part of the 20th century and continuing across the world until the late 20th century, when the regime of floating fiat currencies came into force. One of the last countries to break away from the [[gold standard]] was the United States in 1971.

No country anywhere in the world today has an enforceable gold standard or [[silver standard]] currency system.

=== Commercial bank ===
{{Main|Demand deposit}}
[[File:Sweet success.jpg|thumb|right|A check, used as a means of converting funds in a [[demand deposit]] to cash]]
Commercial bank money or [[demand deposit]]s are claims against financial institutions that can be used for the purchase of goods and services. A demand deposit account is an account from which funds can be withdrawn at any time by check or [[cash]] withdrawal without giving the bank or financial institution any prior notice. Banks have the legal obligation to return funds held in demand deposits immediately upon demand (or 'at call'). Demand deposit withdrawals can be performed in person, via checks or bank drafts, using [[automatic teller machine]]s (ATMs), or through [[online banking]].<ref>{{cite book |last=O'Sullivan |first=Arthur |authorlink=Arthur O'Sullivan (economist) |first2=Steven M. |last2=Sheffrin |authorlink2=Steven M. Sheffrin |title=Economics: Principles in Action |publisher=Pearson Prentice Hall |year=2003 |location=Upper Saddle River, New Jersey |page=258 |isbn=978-0-13-063085-8}}</ref>

Commercial bank money is created through [[fractional-reserve banking]], the banking practice where banks keep only a ''fraction'' of their [[demand deposit|deposits]] in [[bank reserves|reserve]] (as cash and other highly liquid assets) and lend out the remainder, while maintaining the simultaneous obligation to redeem all these deposits upon demand.<ref>''The Bank Credit Analysis Handbook: A Guide for Analysts, Bankers and Investors'' by Jonathan Golin. Publisher: John Wiley & Sons (August 10, 2001). {{ISBN|0-471-84217-6}} {{ISBN|978-0-471-84217-0}}</ref>{{Page needed|date=June 2014}}<ref>{{cite web |url=http://www.bankintroductions.com/definition.html |title=bankintroductions.com – Economic Definitions |publisher= |accessdate=7 October 2014}}</ref> Commercial bank money differs from commodity and fiat money in two ways: firstly it is non-physical, as its existence is only reflected in the account ledgers of banks and other financial institutions, and secondly, there is some element of risk that the claim will not be fulfilled if the financial institution becomes insolvent. The process of fractional-reserve banking has a cumulative effect of [[money creation]] by commercial banks, as it expands [[money supply]] (cash and demand deposits) beyond what it would otherwise be.  Because of the prevalence of fractional reserve banking, the [[M2 (economics)|broad money supply]] of most countries is a multiple larger than the amount of [[Monetary base|base money]] created by the country's [[central bank]]. That multiple (called the [[money multiplier]]) is determined by the [[reserve requirement]] or other [[financial ratio]] requirements imposed by financial regulators.

The money supply of a country is usually held to be the total amount of currency in circulation plus the total value of checking and savings deposits in the commercial banks in the country. In modern economies, relatively little of the money supply is in physical currency. For example, in December 2010 in the U.S., of the $8853.4 billion in broad money supply (M2), only $915.7 billion (about 10%) consisted of physical coins and paper money.<ref>{{cite web|url=http://www.federalreserve.gov/releases/h6/20110127/|title=FRB: H.6 Release – Money Stock and Debt Measures|date=January 27, 2011|website=www.federalreserve.gov}}</ref>

===Digital or electronic===
{{Main|Digital money}}
The development of computer technology in the second part of the twentieth century allowed money to be represented digitally. By 1990, in the United States all money transferred between its central bank and commercial banks was in electronic form.  By the 2000s most money existed as [[digital currency]] in bank databases.<ref>{{cite web|url=https://money.howstuffworks.com/currency6.htm|title=How Currency Works|date=2 September 2003|publisher=}}</ref> In 2012, by number of transaction, 20 to 58 percent of transactions were electronic (dependant on country).<ref>{{cite web|url=http://www.bbc.com/future/story/20150724-the-truth-about-the-death-of-cash|title=The truth about the death of cash|first=Rose|last=Eveleth|publisher=}}</ref>

Non-national digital currencies were developed in the early 2000s. In particular, [[Flooz]] and [[Beenz]] had gained momentum before the [[Dot-com bubble]].{{Citation needed|date=October 2018}} Not much innovation occurred until the conception of [[Bitcoin]] in 2009, which introduced the concept of a [[cryptocurrency]] – a decentralised trustless currency.{{Citation needed|date=October 2018}}

== Monetary policy ==
{{Main|Monetary policy}}
[[File:USCurrency Federal Reserve.jpg|210px|thumbnail|US dollar banknotes]]
When gold and silver are used as money, the money supply can grow only if the supply of these metals is increased by mining. This rate of increase will accelerate during periods of [[gold rush]]es and discoveries, such as when Columbus discovered the [[New World]] and brought back gold and silver to Spain, or when gold was [[California Gold Rush|discovered in California in 1848]]. This causes inflation, as the value of gold goes down. However, if the rate of [[gold mining]] cannot keep up with the growth of the economy, gold becomes relatively more valuable, and prices (denominated in gold) will drop, causing deflation. Deflation was the more typical situation for over a century when gold and paper money backed by gold were used as money in the 18th and 19th centuries.

Modern day monetary systems are based on fiat money and are no longer tied to the value of gold. The control of the amount of money in the economy is known as monetary policy. Monetary policy is the process by which a government, central bank, or [[monetary authority]] manages the [[money supply]] to achieve specific goals. Usually the goal of monetary policy is to accommodate economic growth in an environment of stable prices. For example, it is clearly stated in the [[Federal Reserve Act]] that the [[Board of Governors]] and the [[Federal Open Market Committee]] should seek "to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates."<ref>The Federal Reserve. [http://www.federalreserve.gov/pf/pdf/pf_2.pdf 'Monetary Policy and the Economy".] ([[PDF]]) ''Board of Governors of the Federal Reserve System'', (2005-07-05). Retrieved 2007-05-15.</ref>

A failed monetary policy can have significant detrimental effects on an economy and the society that depends on it. These include [[hyperinflation]], [[stagflation]], [[recession]], high unemployment, shortages of imported goods, inability to export goods, and even total monetary collapse and the adoption of a much less efficient barter economy. This happened in Russia, for instance, after the [[History of the Soviet Union (1985-1991)|fall of the Soviet Union]].

Governments and central banks have taken both regulatory and [[free market]] approaches to monetary policy. Some of the tools used to control the money supply include:
* changing the [[interest rate]] at which the central bank loans money to (or borrows money from) the commercial banks
* currency purchases or sales
* increasing or lowering [[Government debt|government borrowing]]
* increasing or lowering [[government spending]]
* manipulation of [[exchange rate]]s
* raising or lowering bank reserve requirements
* regulation or prohibition of [[Private currency|private currencies]]
* taxation or tax breaks on imports or exports of capital into a country

In the US, the [[Federal Reserve]] is responsible for controlling the money supply, while in the [[Euro area]] the respective institution is the [[European Central Bank]]. Other central banks with significant impact on global finances are the [[Bank of Japan]], [[People's Bank of China]] and the [[Bank of England]].

For many years much of monetary policy was influenced by an [[Economics|economic theory]] known as monetarism. [[Monetarism]] is an economic theory which argues that management of the money supply should be the primary means of regulating economic activity. The stability of the demand for money prior to the 1980s was a key finding of [[Milton Friedman]] and [[Anna Schwartz]]<ref>{{cite book |author1=Milton Friedman |author2=Anna Jacobson Schwartz |title=Monetary History of the United States, 1867–1960 |publisher=[[Princeton University Press]] |location=Princeton, N.J |year=1971 |pages= |isbn=978-0-691-00354-2 |oclc= |doi=}}</ref> supported by the work of [[David Laidler]],<ref>{{cite book |author1=David Laidler |title=Money and Macroeconomics: The Selected Essays of David Laidler (Economists of the Twentieth Century) |publisher=Edward Elgar Publishing |location= |year=1997 |pages= |isbn=978-1-85898-596-1 |oclc= |doi=}}</ref> and many others. The nature of the demand for money changed during the 1980s owing to technical, institutional, and legal factors{{Clarify|date=September 2011}} and the influence of monetarism has since decreased.

== Counterfeit ==
{{Main|Counterfeit money}}
Counterfeit money is imitation currency produced without the legal sanction of the state or government. Producing or using counterfeit money is a form of fraud or forgery. Counterfeiting is almost as old as money itself. Plated copies (known as [[Fourrée]]s) have been found of [[Lydia#First coinage|Lydian coins]] which are thought to be among the first western coins.<ref>{{cite web |title=A Case for the World's Oldest Coin |url=http://rg.ancients.info/lion/article.html |accessdate=29 January 2013}}</ref>  Before the introduction of [[Banknotes|paper money]], the most prevalent method of counterfeiting involved mixing base metals with pure gold or silver. A form of counterfeiting is the production of documents by legitimate printers in response to fraudulent instructions. During [[World War II]], the [[Nazis]] forged British pounds and American dollars. Today some of the finest counterfeit banknotes are called ''[[Superdollar]]s'' because of their high quality and likeness to the real U.S. dollar. There has been significant counterfeiting of [[Euro]] banknotes and coins since the launch of the currency in 2002, but considerably less than for the U.S. dollar.<ref name="autogenerated1">{{cite web |url=http://itsamoneything.com/money/counterfeiting-cash-money-infographic/#.VB71g5R_uJQ |title=Counterfeiting statistics for several currencies |publisher=Itsamoneything.com |accessdate=2014-09-21|date=2012-06-09 }}</ref>

== Laundering ==
{{Main|Money laundering}}
Money laundering is the process in which the proceeds of crime are transformed into ostensibly legitimate money or other assets. However, in a number of legal and regulatory systems the term money laundering has become [[Conflation|conflated]] with other forms of financial crime, and sometimes used more generally to include misuse of the financial system (involving things such as securities, [[digital currency|digital currencies]], credit cards, and traditional currency), including [[terrorism financing]], [[tax evasion]], and evading of [[international sanctions]].

== See also ==
{{Portal|Money}}
{{div col|colwidth=20em}}
* [[Calculation in kind]]
* [[Coin of account]]
* [[Commons-based peer production]]
* [[Digital currency]]
* [[Foreign exchange market]]
* [[Gift economy]]
* [[Intelligent banknote neutralisation system]]
* [[Labour voucher]]
* [[Leprosy colony money]]
* [[Local exchange trading system]]
* [[Money bag]]
* [[Orders of magnitude (currency)]]
* [[Seigniorage]]
* [[Slang terms for money]]
* [[Social capital]]
* [[World currency]]
* [[Counterfeit money]]
{{div col end}}

== References ==
{{reflist}}

==Further reading==
* [[Steve Keen|Keen, Steve]] (February 2015). [https://www.forbes.com/sites/stevekeen/2015/02/28/what-is-money-and-how-is-it-created/ "What Is Money and How Is It Created?"] Uses arguments from [[Augusto Graziani|Graziani, Augusto]] (1989), ''The Theory of the Monetary Circuit'', Thames Papers in Political Economy, Spring: pp. 1–26. "Banks create money by issuing a loan to a borrower; they record the loan as an asset, and the money they deposit in the borrower’s account as a liability. This, in one way, is no different to the way the Federal Reserve creates money ... money is simply a third party’s promise to pay which we accept as full payment in exchange for goods. The two main third parties whose promises we accept are the government and the banks ... money ... is not backed by anything physical, and instead relies on trust. Of course that trust can be abused ... we continue to ignore the main game: what the banks do (for good and for ill) that really drives the economy." ''[[Forbes (magazine)|Forbes]]''
* {{Cite news |last=Hartman |first=Mitchell |date=October 30, 2017 |title=How Much Money Is There in the World? |url=https://www.marketplace.org/2017/10/30/world/how-much-money-there-world |department=I've Always Wondered... (story series) |work=[[Marketplace (radio program)|Marketplace]] |publisher=[[American Public Media]] |access-date=October 31, 2017}}

==External links==
* {{Commons and category-inline|Money|Money}}
* {{Wikiquote-inline|Money}}
* {{Wiktionary-inline}}
* {{Wikisource-inline}}
* [http://www.bbc.co.uk/programmes/p00547ch "Money"], BBC Radio 4 discussion with Niall Ferguson, Richard J. Evans and Jane Humphries (''In Our Time'', Mar. 1, 2001)

{{Means of Exchange}}
{{Economics}}
{{Authority control}}

[[Category:Money| ]]
[[Category:Monetary economics| ]]
[[Category:Currency]]
[[Category:Economic anthropology]]
[[Category:Emergence]]