CLASSIFICATION OF MONEY:

MONEY has been classified by different economist on the basis of different criteria.

Classification on the basis of nature of money:

J.M . Keynes classified money under the following two heads on the basis of its nature:

CLASSIFIATION ON
THE BASIS OF
NATURE OF MONEY

MONEY OF
ACTUAL MONEY
ACCOUNT

COMMODITY REPRESENTATIVE
MONEY MONEY

ACTUAL MONEY: Money proper or actual money is the money which is

in circulation in a country. It is the medium of exchange and means of payment. In
India, for example, the Rupee note and the Rupee com are the actual money
because different types of transactions and payments can be made through them.

A.COMMODITY MONEY: Money proper or actual money is further divided into

commodity money and representative money. Commodity money is mad of
certain metal and its face value is equal to its intrinsic value.

It serves not only as a medium of exchange, but also as a store of purchasing

power. It is also called full-bodied money because its value is materially
equivalent to that of its component stuff.

The money proper in circulation which is not full-bodied is called representative

money. It is money whose value is materially greater than the value of the stuff of
which it is composed. Paper currency notes are an example of representative
money.

B.REPRESENTATIVE MONEY: Representative money may be convertible or

inconvertible. It is convertible if the issuing authority is under the obligation to
convert it into commodity money. It is inconvertible if the issuing authority is
under no obligation to convert it into commodity money.

MONEY OF ACCOUNT: Money of account is that in which accounts

are maintained. Prices of goods and services, general purchasing power, debts,
etc. are all expressed in terms of money of account. Normally, the money proper
and the money of account are the same.

For example, Indian Rupee acts both as the medium of exchange and the money
of account. But, sometimes, the two may be different, particularly at a time of
economic crises.

For example, after the World War I, in Germany, the money proper continued to
be the German Mark, but the money of account changed to the American Dollar
because of its stable value as compared to the depreciating Mark.

Similarly, while the Indian Rupee as the money of account has remained the
same, the actual Indian Rupee has been experiencing change in its weight, size
and content from time to time.
CLASSIFICATION ON THE BASIS OF LEGALITY:

CLASSIFICATION ON
THE BASIS OF LEGALITY

LEGAL TENDER MONEY OPTIONAL MONEY

LIMITED LEGAL UNLIMITED LEGAL

CHEQUES HUNDI
TENDER TENDER

BILL

LEGAL TENDER MONEY:On the basis of acceptability, money has

been classified into legal tender and optional money. Legal tender money is
enforced by law. No one can refuse to accept it as a means of payment.

Legal tender money may be of two types: limited legal tender and (b) unlimited
legal tender. Limited legal tender money is accepted as legal tender only up to a
certain limit.

For example, in India, the small coins of 1,2,5,10 and 25 paise are legal tender
only up to a sum of Rs. 25. That means up to Rs. 25 a person cannot refuse a
payment through these small coins and beyond Rs. 25 he is free to refuse these
coins.
Unlimited legal tender is that money which has to be accepted as a medium of
payment up to any amount. For example, in India, 50-paise coins, one rupee coin
and currency notes of all denominations are unlimited legal tender.

OPTIONAL MONEY: Optional money is that money which may or may

not be accepted as a means of payment; it has no legal sanction. Different credit
instruments, like, cheques, bank drafts, etc., are the examples of optional money.
No one can be forced to accept them.

Cheque: Cheque refers to a negotiable instrument that contains an unconditional

order to the bank to pay a certain sum mentioned in the instrument, from the
drawer’s account, to the person to whom it is issued, or to the order of the specified
person or the bearer.

BILL: A bill of exchange is a written order binding one party to pay a fixed sum of money
to another party on demand or at some point in the future.

HUNDI: a negotiable instrument, bill of exchange, or promissory note of India

used especially in the internal finance of trade
CLASSSIFICATION ON THE BASIS OF MONEY- COMMODITY

CLASSIFICATION ON THE BASIS OF

MONEY - COMMODITY

METALLIC MONEY PAPER MONEY

STANDARD
MONEY SUBSIDARY REPRESENTATIVE
TOKEN MONEY CONVERTIBLE INCONVERTIBLE
PAPER MOEY
MONEY PAPER MONEY PAPER MONEY FIAT MONEY

METALLIC MONEY: Metallic money are the money which are issued by the
central bank of a country in form of metals that acts as an unlimited legal tender in the
economy. Metallic money is that money whose value of money (face-value) is greater than the
commodity value (intrinsic value) of money.In other words, metallic money is made of metals which has
less value then its face value. For example: metallic coin includes 1 rupee coin, 5 rupees coin etc.

Standard metallic money: Standard metallic money refers to the metallic money which is
made up of pure and superior metals like gold and silver. This type of metallic money has
the face value just equal to the intrinsic value(commodity value).
Token coins: Token coins refers to the metallic money which is made up of impure and inferior
metals. This type of metallic money has the face value greater than the intrinsic
value(commodity value).

SUBSIDARY MONEY: a coin especially of silver of a denomination smaller than the

basic monetary unit (such as a U.S. half-dollar, quarter, or dime)

PAPER MONEY: The money made of paper is called paper money. It

consists of currency notes issued by the government or the central bank of a
country. In India, one rupee notes are issued by the Ministry of Finance of the
Government of India, and all other currency notes of higher denominations are
issued by the Reserve Bank of India.
1. Representative Paper Money.
Representative paper money is fully backed by gold and silver reserves. Under the
monetary system of representative money, gold and silver equal to the value of
paper currency issued are kept hi the reserves by the monetary authority.

2.Convertible Paper Money:

The paper money which is convertible into standard coins is called convertible
paper money.

3. Inconvertible Paper Money:

The paper money which is not convertible into standard coins or valuable metals
is called inconvertible paper money. Under the system of inconvertible paper
money, the monetary authority maintains no metallic reserves against paper
currency. It also gives no guarantee to convert the paper currency into gold and
silver.

4.Fiat money
Fiat money is only a variety of inconvertible paper money. Fiat money is backed
neither by the metallic nor the fiduciary reserves. In other words, the monetary
authority gives no guarantee to convert fiat money into valuable metals. According
to Keynes, “Fiat money is Representative (or, Token) Money (i.e., something the
intrinsic value of the material substance of which is divorced from its monetary
face value) now generally made of paper except in the case of small denominations
– which is created and issued by the State, but is not convertible by law into
anything other than itself and has no fixed value in terms of an objective standard.”

CLASSIFICATION ON THE BASIS OF LIQUIDITY:

CLASSIFICATION
ON THE BASIS
OF LIQUIDITY

ACTUAL MONEY NEAR MONEY

COMMODITY COMMODITY
MONEY MONEY

ACTUAL MONEY: Money proper or actual money is the money which is

in circulation in a country. It is the medium of exchange and means of payment. In
India, for example, the Rupee note and the Rupee com are the actual money
because different types of transactions and payments can be made through them.

A.COMMODITY MONEY: Money proper or actual money is further divided into

commodity money and representative money. Commodity money is mad of
certain metal and its face value is equal to its intrinsic value.
It serves not only as a medium of exchange, but also as a store of purchasing
power. It is also called full-bodied money because its value is materially
equivalent to that of its component stuff.

The money proper in circulation which is not full-bodied is called representative

money. It is money whose value is materially greater than the value of the stuff of
which it is composed. Paper currency notes are an example of representative
money.

Near Money: Near money is a term used to describe non-cash assets that
are very liquid and that are easily convertible into cash. It is also referred to as
quasi-money or cash equivalents.
Examples of near money are:
• Savings accounts
• Government treasury securities (T-bills)
• Money market securities
• Liquid foreign currencies (US dollar, Japanese yen)
• Certificates of deposit (CDs)
• Close to expiration bonds