Understanding Money

Summary This chapter provides a comprehensive overview of the concept of money, tracing its evolution from commodity money in early societies to modern digital forms. It highlights money's three fundamental roles: as a store of value, a unit of account, and a medium of exchange. The chapter categorizes various forms of money, including commodity money, central bank or fiat money, digital/electronic money, representative money, commercial bank money, local money, and alternative money like cryptocurrencies. It also discusses the concept of money as a liability, emphasizing the challenges in the exchange of liabilities issued by different entities and the importance of the “singleness of money” concept in maintaining stability in the monetary system. The chapter touches on e-money, explaining its issuance and management by e-money institutions (EMIs) and its role as a liability of the issuing entity. Concluding with a table providing an overview of different money types, the chapter sets the stage for a deeper exploration of digital money and payments in the next chapter.