Learn about the different types of money, from commodity and fiat money to bank deposits and digital currency and understand how money has evolved over time.
Updated October 13, 2026
Learn about the different types of money, from commodity and fiat money to bank deposits and digital currency and understand how money has evolved over time.
The main types of money are commodity money, representative money, fiat money, commercial bank money and digital money, which today includes electronic money, cryptocurrencies, stablecoins and central bank digital currencies (CBDCs). Commodity money has value in itself, like gold, silver or salt. Representative money is a paper note or token that can be exchanged for a fixed amount of a commodity, such as currency once backed by gold. Fiat money, which includes almost every national currency in use today, has no intrinsic value and is not backed by a commodity; it holds value because a government declares it legal tender and people trust that it will be accepted. Most of the money in modern economies actually exists as commercial bank money, the balances held in bank accounts, rather than as physical cash. Digital currency is the newest stage, ranging from privately created cryptocurrencies to digital versions of national currencies issued by central banks. The encouraging truth is that each stage solved problems with the one before it; the honest caveat is that each also introduced new risks, from inflation to volatility.
This guide explains the different types of money and how they evolved: what money actually is, how commodity money worked, why representative money replaced it, how fiat money became the global standard, why most money is created by banks rather than printed, and how digital currencies are reshaping the system. It also explains why these differences matter to traders, because the forex market, gold and crypto are all, in different ways, markets in money itself. The recurring theme is that money is ultimately a system of trust, and what backs that trust has changed dramatically over time. Skyriss believes that understanding what money is, and what gives it value, is fundamental context for anyone trading currencies, gold or digital assets. This article is educational and does not constitute investment advice; trading forex and CFDs carries a high risk of losing money rapidly due to leverage.
For those who want the overview immediately, here are the main types.
Commodity money is an object with value of its own, such as gold, silver, salt or shells, used as a medium of exchange. Representative money is a certificate or note that represents a claim on a commodity held elsewhere, like banknotes once redeemable for gold. Fiat money is currency with no intrinsic value and no commodity backing, issued by governments and valued because of legal tender status and public trust; the US dollar, euro, pound and UAE dirham are all fiat currencies. Commercial bank money is the deposit money created by banks when they make loans, and it makes up the majority of money in modern economies. Digital money covers several forms: electronic money held in bank accounts, cards and payment apps; cryptocurrencies such as Bitcoin, which are decentralised and not issued by any government; stablecoins, which are cryptocurrencies designed to track the value of a traditional currency; and CBDCs, which are digital forms of a country’s official currency issued directly by its central bank.
The progression shows a clear pattern: money has moved from physical objects with inherent value toward systems based on trust, law and technology. The rest of this guide explains each type in depth.
Before looking at the types of money, it helps to understand what makes something money in the first place. Economists generally describe money by the functions it performs rather than by what it’s made of.
Money acts as a medium of exchange, something widely accepted in return for goods and services, which removes the need for barter. It acts as a unit of account, a common measure for pricing and comparing value. It acts as a store of value, allowing purchasing power to be saved and used later. And it acts as a standard of deferred payment, allowing debts to be measured and repaid over time.
Barter requires a “double coincidence of wants”: you need to find someone who has what you want and also wants what you have. That makes trade slow and inefficient. Money solves the problem by giving everyone a shared item they’re willing to accept, which can then be exchanged for anything else. Over time, the qualities that made something effective as money became clear: it needed to be durable, portable, divisible, uniform, limited in supply and widely accepted.
Commodity money is the oldest form of money. It consists of items that have value in their own right, independent of their use as currency. Throughout history, societies have used grain, livestock, salt, shells, beads and, most enduringly, precious metals like gold and silver.
Gold and silver became the dominant forms of commodity money because they met the key requirements unusually well. They’re durable and don’t corrode easily, they’re scarce, they can be divided into smaller units, and their value is concentrated in small, portable amounts. Over time, metals were minted into coins of standard weight and purity, making them easier to trust and exchange.
Commodity money had several practical problems. Large amounts were heavy and risky to transport. Coins could be debased, with rulers or counterfeiters reducing the precious metal content while keeping face values the same. Most importantly, the money supply depended on how much of the commodity could be mined or produced, which didn’t necessarily match the needs of a growing economy. New discoveries could cause inflation, while shortages could restrict trade and economic activity.
Representative money emerged as a solution to the inconvenience of carrying commodities. Instead of exchanging the commodity itself, people used paper notes or certificates representing a claim on a specific quantity of that commodity, held securely by a bank, merchant or government.
Early versions developed when merchants and goldsmiths issued receipts for gold and silver deposited with them. Those receipts began to circulate as payment in their own right, because people trusted that they could be redeemed for the underlying metal. Over time, governments and central banks issued banknotes backed by gold or silver reserves.
The gold standard was a monetary system in which a country’s currency was directly linked to a fixed quantity of gold, and paper money could be exchanged for gold at that rate. It provided stability and discipline, because a country couldn’t easily expand its money supply without enough gold to back it. But that same constraint limited governments’ ability to respond to economic crises, recessions and wars. Countries gradually moved away from gold convertibility during the twentieth century, and the last major link between a leading currency and gold was severed in the early 1970s, when the United States ended the convertibility of the dollar into gold for foreign governments. That marked the transition of the global monetary system to fiat money.
Fiat money is currency that has no intrinsic value and is not backed by a physical commodity. Its value comes from government decree, its status as legal tender for settling debts and paying taxes, and, crucially, public confidence in the issuing government and central bank. Today, virtually every national currency, including the US dollar, euro, Japanese yen, British pound and UAE dirham, is fiat money.
The major advantage of fiat money is flexibility. Central banks can adjust the money supply and interest rates to respond to economic conditions, support growth during downturns, and manage inflation, rather than being constrained by gold reserves.
Trust and demand. People accept fiat money because they’re confident others will accept it too, and because governments require taxes to be paid in it. Its purchasing power depends heavily on how responsibly the money supply is managed. When central banks maintain credibility and keep inflation under control, fiat currencies can function well as stores of value. When governments lose control of inflation or confidence collapses, currencies can lose value rapidly, sometimes to the point of hyperinflation. This is why central bank policy, inflation data and interest rate decisions are among the most closely watched drivers of currency markets.
A common misconception is that most money is physical cash printed by governments. In reality, cash makes up only a small share of the money in modern economies. Most money exists as commercial bank money, the deposits held in bank accounts.
When a commercial bank makes a loan, it generally doesn’t hand over existing money from other customers’ savings. Instead, it creates a new deposit in the borrower’s account, which adds new money to the economy. When loans are repaid, that money is effectively removed. Banks operate within limits set by regulation, capital requirements and central bank policy, and interest rates set by central banks strongly influence how much borrowing, and therefore money creation, takes place.
Central banks typically measure money in layers. The narrowest measures include physical currency and reserves held at the central bank. Broader measures add bank deposits that can be accessed immediately, and broader measures still include savings deposits and other near-money assets. Changes in these measures can signal shifts in economic activity, lending and inflation pressures, which is why they’re closely followed by economists and markets.
Electronic money refers to money held and transferred digitally within the traditional financial system. When you pay by card, transfer funds through online banking, or use a payment app or digital wallet, you’re using electronic money.
It’s important to note that electronic money isn’t a new type of currency. A balance in your bank account or payment app is still denominated in fiat currency; it’s simply recorded and moved digitally rather than as physical cash. In many countries, the majority of everyday transactions are now electronic, and some economies are moving steadily toward becoming largely cashless.
Cryptocurrency is a form of digital money that operates on a decentralised network rather than being issued or controlled by a government or central bank. Transactions are recorded on a blockchain, a shared, distributed ledger maintained by a network of computers and secured using cryptography.
Bitcoin, launched in 2009, was the first widely adopted cryptocurrency. It was designed with a fixed maximum supply, an approach that echoes the scarcity of commodity money, and many supporters describe it as “digital gold.” Thousands of other cryptocurrencies have since been created, with different designs and purposes, including platforms that support smart contracts and decentralised applications.
That’s widely debated. Cryptocurrencies can be used as a medium of exchange, and some people treat them as a store of value. However, their prices are typically far more volatile than major fiat currencies, which makes them less practical as a unit of account for everyday pricing. In most countries, they aren’t legal tender, and regulatory treatment varies significantly by jurisdiction. For many participants, cryptocurrencies function more as speculative or investment assets than as day-to-day money.
Stablecoins are cryptocurrencies designed to maintain a stable value by tracking a reference asset, usually a major fiat currency such as the US dollar. Most aim to hold their value by backing each coin with reserves of cash or short-term government securities, although some use other collateral structures or algorithmic mechanisms.
Stablecoins combine features of digital currency, such as fast transfer on blockchain networks, with the relative price stability of fiat money. They’re widely used in crypto markets for trading and moving funds, and increasingly for payments and cross-border transfers. Their reliability depends on the quality and transparency of their reserves and the strength of their governance, and regulators in many jurisdictions have been developing frameworks to supervise them.
A central bank digital currency (CBDC) is a digital form of a country’s official fiat currency, issued and backed directly by its central bank. Unlike commercial bank deposits, which are a claim on a private bank, a CBDC would be a direct claim on the central bank, similar to physical cash but in digital form. Unlike cryptocurrencies, it’s centralised and carries the same legal status and value as the national currency.
Many central banks around the world are researching, piloting or have launched CBDCs. Some focus on retail CBDCs for use by the public, while others focus on wholesale CBDCs for settlement between financial institutions, including faster and cheaper cross-border payments.
Motivations vary by country, but common goals include modernising payment systems as cash use declines, improving financial inclusion, making cross-border payments more efficient, and maintaining public access to central bank money in an increasingly digital economy. CBDCs also raise important questions about privacy, the role of commercial banks and financial stability, which is why many central banks are proceeding cautiously.
Understanding the evolution of money isn’t just economic history; it’s directly relevant to several of the world’s largest markets.
The forex market exists because the world runs on fiat currencies whose values float against one another. Exchange rates move in response to interest rates, inflation, economic growth and confidence in central banks, all of which come back to how fiat money is managed. Gold remains closely watched as a former monetary standard and a store of value outside the fiat system, often attracting demand during periods of inflation, currency weakness or uncertainty. Cryptocurrencies represent a newer, decentralised alternative, and their prices are often influenced by regulation, adoption, liquidity conditions and broader risk sentiment.
Skyriss offers CFD trading on major currency pairs, gold and other precious metals, and cryptocurrencies within a regulated environment, allowing traders to speculate on price movements without owning the underlying assets. Because CFDs are traded with leverage, which magnifies both gains and losses, understanding what drives the value of each type of money is valuable context for managing risk.
The main types are commodity money, representative money, fiat money, commercial bank money and digital money. Digital money includes electronic money, cryptocurrencies, stablecoins and central bank digital currencies.
Commodity money has intrinsic value, such as gold or silver, and is valuable regardless of its use as currency. Fiat money has no intrinsic value and no commodity backing; its value comes from government legal tender status and public trust.
No. The US dollar is fiat money. The last major link between the dollar and gold ended in the early 1970s, when the United States ended convertibility of dollars into gold for foreign governments.
Representative money is a note or certificate representing a claim on a commodity held elsewhere, such as banknotes that could once be exchanged for a fixed amount of gold under the gold standard.
When a commercial bank makes a loan, it typically creates a new deposit in the borrower’s account, which adds new money to the economy. This process is constrained by regulation, capital requirements and central bank policy.
Cryptocurrencies like Bitcoin are decentralised and not issued by any government. A central bank digital currency is a digital form of a national currency, issued and backed by the central bank, with the same legal status as the country’s cash.
A stablecoin is a cryptocurrency designed to maintain a stable value, usually by tracking a fiat currency such as the US dollar and holding reserves to support that value.
The history of money is a story of societies searching for better ways to exchange value. Commodity money provided inherent worth but was heavy and difficult to scale. Representative money made trade more convenient while remaining tied to physical reserves. Fiat money removed that link entirely, giving central banks the flexibility to manage economies, at the cost of relying completely on trust and responsible policy. Commercial bank money and electronic payments transformed how that money is created and moved, and digital currencies, from cryptocurrencies to stablecoins and CBDCs, are now testing new models of what money can be.
The most important lesson is that the value of money has always depended on confidence: confidence in a commodity’s scarcity, in a reserve’s existence, in a government’s discipline, or in a technology’s security. For traders, those shifts in confidence are what move currencies, gold and digital assets. Understanding what backs each form of money helps explain why its value changes, and why the markets built on it behave the way they do. Explore currencies, gold and crypto markets with Skyriss at skyriss.com/get-started.
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