Kinds Of Money : Money Proper And Money Of Account

Kinds of Money : Coins, Paper and Deposit Money.
Kinds of Money : Legal Tender Money and Optional Money.
Kinds of Money : Money Proper and Money of Account. (You are reading this)

Money proper or actual money is that money which circulates in a country as a medium of exchange. It is form of money in which the price contracts and debt contracts are discharged. General purchasing power is stored in terms of money proper. Berham calls it “Unit of currency” and Seligman refers to it as “Actual money”.

Money Proper And Money Of Account

Keynes has further classified money proper 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. It draws its importance from the main or the commodity money which it represents. Representative money may either be representative full-bodied money or representative token money.

The formal is convertible into full-bodied coins or the equivalent quantity of bullion and is, therefore, based upon 100 percent reserves of bullion maintained as backing against its issue. The latter is in-convertible money or what is termed as “Fiat Money”. It generally circulates as paper money “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.” Managed money is another sub-species of representative money. It is like a fiat money, but it is related in a certain way to an objective standard of value or some metallic reserve. It is, thus, a hybrid between commodity money and fiat money. It is the most common form of money in nearly all the countries.

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. According to Keynes, money of account is the description or title, while actual money is the thing which answers the description. “The difference is like that between the king of England (whoever he may be) and King George”. Benham has called money of account as “Unit of account” and Seligman considers it as “Ideal money”. Since it is only a title of the thing used as money, it is not subject to evolutionary change, it is static in character. For instance, rupee has been used as the money of account ever since the establishment of monetary system in India although the money material representing rupee has changed over time.

Under normal conditions, the items which serve as means of payment or money proper are uniquely related to the abstract unit of account. They are expressed or defined in terms of that abstract entity as fixed fractions or multiples. Money, being defined in terms of the unit if account, always has an invariable price in terms of that unit.

Reference Book: Money Banking and International Trade.


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