Definition of money :

Money is defined as anything that acts as a medium of exchange; any commodity that is
generally acceptable as a payment for goods and services can serve as money. Money is
valuable merely because everybody accepts it as a form of payment to trade goods and
services indirectly.
Money is also the lubrication which enables the efficient transfer of resources. Islam
encourages Muslims to invest their money and to become partners in order to share profits
and risks in business instead of becoming creditors.

History of money :
Before the evaluation of money, a system of barter was used. A system barter is and old
method of exchange to directly exchange goods and other services for other good and
services without using medium of exchange, such as money. However the exchange of
process faced a lot of problems due to the limitations of a barter system and this convinced
traders to find other alternatives and more efficient methods of exchanging goods and
services.
Due to the mentioned limitations of a barter system, money was created to play the role of
barter system. The evaluation of money starts from commodity money to metallic money,
paper money, token money, fiat money, bank money and plastic money.

Types of money :
Money today is referred to as fiat money. The word fiat is Latin in origin and means let it
be done. The types of money are as follows:
1. Commodity money
Any item that has its own value and used as a means of payment such as tobacco,
cowrie shells, cigarettes and so on.
2. Metallic money
Metals used as money were iron, tin, copper, silver and gold. Problems arose as mose
metals were too scarce to serve the needs of medium of exchange.
3. Paper money
Originated from receipts issued by goldsmiths to customers for safekeeping of their
valuables. Today paper money refers to legal tender approved by the government for
circulation as a means of payment such as dollar bills.
4. Token money
Money which has a lower metallic value than its face value. For example, coins in
denominations of 5, 10, 20 and 50 cents issued by the Central Bank of Malaysia.
5. Fiat money
Any item used by the central bank and declared by the government as money. Fiat
money includes coins and paper money such as currency.
 6. Bank money
Bank money also known as bank deposit, demand deposit or current account. Money
deposited in a current account or demand deposit is transferrable through cheques. A
cheque is not money, it only instructs the bank to transfer money from one account to
another.
7. Plastic money / near money
Refers to credit cards such as MasterCard and visa or debit cards, which are used for
cashless transactions. This is the most modern form of banking facility. Credit cards
are not money it is only an agreement to pay for goods when the card company bills
the customer.
Characteristics of money
1. Acceptability
Money must be widely accepted not only for its intrinsic value, but also as a medium
of exchange for goods and services. Almost any item or any asset such as
gold,silver,copper,nickel,animal skins or precious gems have been used as money
over the centuries because these items can function as money and are generally
accepted as payment. In the modern economy, people are confident that money is
tradable for goods and services.

2. Durability
Money must be able to keep for a long period of time and withstand the wear and tear
of many people using it. Durability also means that money cannot easily
decompose,deteriorate,degrade or change its form, and it must be able to store its
value from one transaction to the next.
Gold,silver,copper and nickel has historically functioned as money because they are
extremely durable materials. This is because an ounce of gold or silver today will
remain as an ounce of gold or silver tomorrow and even a thousand years later, unlike
perishable agricultural goods such as vegetables or raw meat which will rot in a few
days.

3. Divisibility
Money must be easily divisible into smalls units so that people can purchase goods
and services at any price. For example, a RM100 can be exchanged for smaller
denominations of RM50, RM20, RM10, RM5 and further to even smaller units. In
fact, the smaller the division, the better it serves as money.

4. Portability or transportability
Money must easy to carry around. When people purchase goods, they need to bring
along their money. Hence, money must be portable or transportable. Carrying around
gold or silver in the olden days was troublesome compared to paper currency in the
20th century because paper is lighter and easier to carry. Likewise, paper cheques used
to access current account balances are more convenient compared to 1 million cash.
5. Relative scarcity
Money must be relatively scarce and hard for people to obtain and the supply of
money is controlled by the central bank. Money also cannot be easily duplicated or
printed up. The governments role is to prevent the duplication of money and
control the total quantity in circulation.

6. Uniformity or homogeneity
Money must be in the same weight and design. For example, in comparing RM1000
will cows, it is obvious that RM1000 are not the same size,shape and value as they are
all uniform. This is unlike cows which come in many sizes ansd shapes, resulting in
each having a different value. Hence, cows cannot serve as a uniform of money.