When the money value of money exceeds the commodity value of money, it...
Credit money has a face value which is much higher than the commodity value. Credit money consists of credit cards, demand deposits, among others.
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When the money value of money exceeds the commodity value of money, it...
Introduction:
When the money value of money exceeds the commodity value of money, it is known as credit money. Credit money is a form of money that is not backed by a physical commodity but rather by the trust and confidence of the people using it. Let's explore this concept in detail.
Explanation:
Credit money is a type of money that is not directly convertible into a physical commodity like gold or silver. It relies on the trust and confidence of the people using it, as well as the guarantee of the issuer, usually a government or a central bank. In the case of credit money, the value of money is not derived from the value of the underlying commodity, but rather from the trust and confidence of the people using it.
Key Points:
- Commodity value of money: The commodity value of money refers to the value of the physical commodity, such as gold or silver, that backs the currency.
- Money value of money: The money value of money refers to the value assigned to the currency by the people using it, based on their trust and confidence in its acceptability and stability.
- Credit money: Credit money is a form of money that is not backed by a physical commodity but rather by the trust and confidence of the people using it.
- Exceeding the commodity value: When the money value of money exceeds the commodity value of money, it means that people have more confidence in the currency than in the underlying commodity.
- Full-bodied money: Full-bodied money refers to currency that is directly convertible into a physical commodity, such as gold or silver.
- Fiat money: Fiat money is a type of currency that is not backed by a physical commodity but is declared by the government as legal tender.
- Fiduciary money: Fiduciary money refers to currency that is backed by a physical commodity to some extent but is not fully convertible into that commodity.
Conclusion:
In conclusion, when the money value of money exceeds the commodity value of money, it is called credit money. This type of money is not backed by a physical commodity but rather by the trust and confidence of the people using it. Credit money relies on the guarantee of the issuer, usually a government or central bank. It is important to understand the difference between credit money and other forms of money, such as full-bodied money, fiat money, and fiduciary money, as each has its own characteristics and implications for the economy.