LeoGlossary: Money

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Any item or record that is accepted as payment for goods and services and repayment of debts, such as taxes.

Money evolved ever since it was introduced to replace the barter system. At times in history, some physical money was commodity backed, primarily using gold and other precious metals.

Contemporary monetary systems are made up of fiat currency. Instead of deriving its value from commodity backing, it is set by supply and demand along with the economic productivity tied to it.

With the creation of double entry accounting in the late 1400s, we saw ledger based money evolve. This has been done throughout history by private entities. They were the money creators, using credit on ledgers as money. This helped to alleviate issued with coin money.

Fiat currency came into being since gold could not be mined fast enough to keep up with a booming economy. It depends upon people's perception. An economy that is growing shows that it is producing other things of value.

Currency tied to strong economies will be perceived as stronger money. This same concept is likely going to apply to cryptocurrency. Those blockchain systems that have strong economies with heavy commerce and transactions will likely be valued higher than those who do not.


Money that is legal tender is recognized by law (government) as settlement for private and public debts.

Types of Money

Most currencies operate under a fractional reserve banking system. When this happens, we see two forms of money emerge:

Since loans are what create the money supply, that is in the hands of the banks. The central bank can only affect the monetary base. As such, all actions undertaken to stimulate the economy are indirect by an entity such as the Fed.


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