Some of the most important forms of money are as follows:
1. Money of Account
2. Limited and Unlimited Legal Tender
3. Standard Money
4. Token Money
5. Bank Money.
1. Money of Account:
Money of account is the monetary unit in terms of which the accounts of country are kept and transactions settled, i.e., in which general purchasing power, debts and prices are expressed. The rupee is, for instance, our money of account; sterling is the money of account of Great Britain and marks that of Germany. Money of account need not however be actually circulating in the country.
2. Limited and Unlimited Legal Tender:
Coins may be limited legal tender or unlimited legal tender. A legal tender currency is one in terms of which debts can be legally paid. It is an offence to refuse to accept payment in legal tender money. A currency is unlimited legal tender when debts up to any amount can be paid through it.
It is limited legal tender when payments only up to a given limit can be made by means of it. For instance, rupee coins and rupee notes are unlimited legal tender in India. And so is the half-rupee coin. But coins of lower denominations are only limited legal tender. They are legal tender only up to ten rupees.
When a coin is worn out and become light beyond a certain limit, then it ceases to be a legal tender. When one rupee and half-rupee coins are more than 20% below the standard weight they are not long in legal tender. A Government may take away the legal tender quality of a currency.
For instance, the old rupee coins of one hundred and eighty grains 11/12 fine are no longer legal tender in India. In 1978 the Government declared currency notes of rupees one thousand denomination and above as no longer legal tender, it is usually done to bring such currency out of the hoards. However, recently notes of Rs. 1000 have again been issued by Reserve Bank of India and have unlimited legal tender status.
3. Standard Money:
Standard money is that in which the value of goods as well as all other forms of money are measured. Thus, in India all prices of goods are measured in terms of rupees. Moreover, the other forms of money such as two-rupee notes, ten rupee notes, hundred rupee notes and one half rupee coin are expressed in terms of rupees. Thus rupee is the standard money of India. Standard money is always made the unlimited legal tender money.
In old days the standard money was & full- bodied money, i.e., its face value was equal to the real or intrinsic worth of the metal it contained. But now-a-days in almost all countries of the world, even the standard money is only a token money i.e., the material contained in it is very much less than the face value written on it.
Thus, the rupee in India is available in the form of paper notes which have no intrinsic worth. Even the rupee coin has a metallic value much less than its face value. Rupee coin has been called a ‘note printed on nickel’ (Rupee coin these days is made of nickel).
4. Token Money:
The token money is that the metallic value of which is much less than the real or intrinsic worth of the metal it contains. Rupee and all other coins in India are all token money.
5. Bank Money:
Demand deposits of banks are usually called bank money. Bank deposits are created when somebody deposits money with them. Banks also create deposits when they advance loans to the businessmen and traders. Today these demand deposits are the important constituent of the money supply in the country.
It is important to note that bank deposits are generally divided in two categories: demand deposits and time deposits. Demand deposits are those deposits which are payable on demand through cheques and without any serving prior notice to the banks. On the other hand, time deposits are those deposits which have a fixed term of maturity and are not withdraw able on demand and also cheques cannot be drawn on them.
Clearly, it is only the demand deposits which serve as a medium of exchange, for they can be transferred from one person to another through drawing a cheque on them as and when desired by them. However, since even time or fixed deposits can be withdrawn by foregoing some interest and can be used for making payments, they are included in the concept of broad money, generally called M3. It may be noted that latest addition to the forms of money are credit cards issued by the banks which are these days extensively used for making purchases.