Different Types of Money | Types of Money in India

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Hello friends, in today’s article we are going to know about the different types of money or types of money in India. So let’s discuss in details.

Types of Money

The economists have classified money on the different bases or criteria. According to the legal definition of money, money is what the law says is money. So, anything which the government declares as money is money. On the basis of legal recognition, money is of two kinds –

(a) Legal Tender Money

Money which can be legally used to make payment of debts or other obligations is termed as legal tender money. A creditor is obliged by law to receive such money in payment of debt due to him. Legal tender money is of two types –

• Limited Legal Tender – It refers to that form of legal tender money, which can be paid in discharge of a debt up to a certain limit. Beyond this limit, a person may refuse to accept the payment and no legal action can be taken against him. In India, coins are limited legal tender.

• Unlimited Legal Tender – It refers to that form of legal tender money, which can be paid in discharge of a debt of any amount. Legal action can be taken against a person who refuses to accept this money. In India, paper notes are unlimited legal tender.

(b) Non-Legal Tender Money or Optional Money – It refers to that form of money which is generally accepted, but legally, one is not bound to accept it. As for example, bank drafts, cheques, bills of exchange, etc. do not have legal backing and their acceptance is totally optional.

On the basis of the physical characteristics of the material used in money, the kinds of money are metallic money and paper money.

(a) Metallic Money

Money made of any metal is called metallic money. It refers to coins made of various metals like silver, gold, copper, nickel, etc. The face value of metallic coin is specified by the government which has Monopoly in the minting of coins. Metallic money is of three types.

• Standard or full bodied Money – Standard money or full bodied money refers to that money whose face value (the value specified upon it) is equal to intrinsic value (the value of its component material). Full bodied money requires the fulfillment of two conditions –

(i) Money can be shifted from monetary to non monetary uses without any cost.

(ii) The metal can be coined into money without limit and without cost.

• Token Money – The money whose face value is more than its intrinsic value is called token money. They are made of cheaper metals like, nickel, copper, etc. It is minted by the government and three is no free coinage of it. Token money is limited legal tender.

• Subsidiary Money – The subsidiary money is comprised of the coins of smaller denominations.

(a) Paper Money

The money which is made of paper is called as paper money. It consists of currency notes issued by the government or central bank of a country. Paper money is of four types –

• Representative paper Money – Representative paper money is the money which is fully backed or covered by the reserves of gold and silver held by the monetary authority.

• Convertible paper Money – The convertible paper money is the money which can be converted into gold coins, gold or silver equal to the face value of the paper money.

• Inconvertible paper Money – A paper money which can not be converted into full bodied money is known as inconvertible paper money.

• Fiat Money – The fiat money is the paper money that circulates on the authority of the department or the monetary authority.

On the basis of nature or functions, money is two types

(a) Money proper or Actual Money – Money proper is that money which circulates in a country as a medium of exchange. Keynes has further classified money proper or actual money into “Commodity Money” and “Representative money”.

Commodity money is composed of some commodity chosen as money. It is full bodied money or standard money. Representative money circulates in the form of cheap metallic coins or convertible paper notes.

(b) Money of Account – Money of account is that in which debts and prices and general purchasing power are expressed. It is that form of money in which the accounts are maintained and the value is measured.

(c) Credit Money – Credit money is any future monetary claim against an individual that can be used to buy goods and services. There are many forms of credit money, such as bonds and money market accounts. Virtually any form of financial instrument that can not or is not meant to be repaid immediately is credit money.


So friends, this was the different types of money in economics or types of money in India. Hope you get the full details about it and hope you like this article.

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