Commodity Money

It is the simplest kind of money which is used in barter system where the valuable
resources fulfill the functions of money. The value of this kind of money comes from the value
of resource used for the purpose. It is only limited by the scarcity of the resources. Value of this
kind of money involves the parties associated with the exchange process. These money have
intrinsic value. Whenever any commodity is used for the exchange purpose, the commodity
becomes equivalent to the money and is called commodity money. There are certain types of
commodity, which are used as the commodity money. Among these, there are several precious
metals like gold, silver, copper and many more. Again, in many parts of the world, seashells,
tobacco and many other items were in use as a type of money & medium of exchange. The
example of commodity money are such as gold coins, beads, shells, pearls, stones, tea, sugar and
metal.

Fiat Money

The word fiat means the ”command of the sovereign” such as paper money and coin. Fiat
currency is the kind of money which don’t have any intrinsic value and it can’t converted into
valuable resource. The value of fiat money is determined by government order which makes it a
legal instrument for all transaction purposes. The fiat money need to be controlled as it may
affect entire economy of a country if it is misused. Today Fiat money is the basis of all the
modern money system. The real value of fiat money is determined by the market forces of
demand and supply.

CURRENCY 

Currency refers to money in any form when in actual use or circulation as a medium of
exchange, especially circulating banknotes and coins. A more general definition is that a
currency is a system of money in common use, especially in a nation. Under this definition
Malaysia Ringgit Malaysia, US dollars, British pounds, Australian dollars, and European euros
are examples of currency. These various currencies are recognized stores of value and are traded
between nations in foreign exchange markets, which determine the relative values of the
different currencies. Currencies in this sense are defined by governments, and each type has
limited boundaries of acceptance.
DEMAND DEPOSIT

An account with a bank or other financial institution that allows the depositor to
withdraw his or her funds from the account without warning or with less than seven days' notice.
Checking accounts are an example of demand deposits. They allow the depositor to
withdraw funds at any time, and there is no limit to the number of transactions a depositor can
conduct with these accounts although a bank may charge a fee for each transaction.

BANK AND THE MONEY SUPPLY

Money supply controlled by federal bank. Total of money supply is not affected by
changes in interest rates. If the Bank’s money supply behavior is not influenced by the interest
rate, the money supply curve is a vertical line. Through its three tools which is open-market
operations, changing the reserve requirement and changing the discount rate, the Bank can cause
the money supply be whatever value it wants. Banks can influence the quantity of demand
deposits in the economy and the money supply. Affect the economic stability and economic
growth of a country. Excessive money supply creates inflationary problems. Low money supply
creates a slowdown in economic growth or economic recession and unemployment problems. To
ensure that money supply is always sufficient, withdraw money by federal bank and credit
creation by commercial banks are closely monitored by the Central Bank.