Token money

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Token money used in Oflag VII-A Murnau in German Murnau am Staffelsee Oflag VII token money.jpg
Token money used in Oflag VII-A Murnau in German Murnau am Staffelsee

Token money, or token, is a form of money that has a lesser intrinsic value compared to its face value. [1] Token money is anything that is accepted as money, not due to its intrinsic value but instead because of custom or legal enactment. [2] Token money costs less to produce than its face value. [2] A banknote, e.g. a five-pound note, is token money because despite its value being 5 pounds it only costs significantly less to produce. [2] A gold coin is not considered token money. [2] The Token money system has been adopted in many businesses around the world as an effective way to exchange value between companies and customers. [3] Token money as a system is predominantly used in mobile games, but is also used in the realm of e-commerce. [3] Token money is similar to fiat money which also has little intrinsic value, however they differ in that token money is a limited legal tender. [4] The adoption of token money has improved transaction efficiency, as the practicalty of transacting with sums of gold poses a larger security risk. In a commodity economy, money is a measure of the value of goods and services (prices) within a sovereign country or the same economy, as well as a particular commodity to pay off debts. [5] The token is also used as a medium of exchange, as a store of value, and as a unit of account. Digital currencies using decentralized blockchain technology are also a form of token money. [6]



In Ancient Greece and the Roman Empire, copper coins were used for small transactions and were issued a monetary value greater than the value of the metal itself. [2] This established the principle of token money, which is the nature of coinage in contemporary society. [2] Plato distinguished between tokens and commodities. [7] In Medieval Indian History, Mohammad Bin Tughlaq (c.1290-1351) issued copper currency called Tanka as token money whose value was legally set equal to silver coin, and is considered the world’s first truly token currency.

In the early nineteenth century, David Ricardo suggested issuing token money as long as it did not affect commodity standard. [8]

Physical tokens

Former tokens are collected and displayed Numismatics collection of the MNAC- local money displays (16).jpg
Former tokens are collected and displayed

Token money has less intrinsic value compared to its face value. [9] If the token money is metallic it is commonly made out of cheaper metals such as copper and nickel. [10] [11]

Token money is also money whose face value exceeds its cost of production, i.e. the intrinsic value is lower than the extrinsic value. This means that the actual worth of a note or coin is much less than what we use it for. The cost of production of token money is less than its actual value, for example with convertible currency, collector notes, souvenirs, coupons, some retired US banknotes and per 1986 banknotes printed in regulation size and only on one side with authorization are actually worth more dollars than when issued. [12] [13]

With token money, exchanges are not considered fully complete because the exchange of value is not equivalent. [14] Value is hoped to be rendered at some future time. Examples of this include bills of exchange or negotiable instrument and certificates. [14]

Token money does not have free coinage. [10]

See also

Related Research Articles

A currency is a standardization of money in any form, in use or circulation as a medium of exchange, for example banknotes and coins. A more general definition is that a currency is a system of money in common use within a specific environment over time, especially for people in a nation state. Under this definition, the British Pound Sterling (£), euros (€), Japanese yen (¥), and U.S. dollars (US$) are examples of (government-issued) fiat currencies. Currencies may act as stores of value and be traded between nations in foreign exchange markets, which determine the relative values of the different currencies. Currencies in this sense are either chosen by users or decreed by governments, and each type has limited boundaries of acceptance; i.e., legal tender laws may require a particular unit of account for payments to government agencies.

<span class="mw-page-title-main">Coin</span> Small, flat and usually round piece of material used as money

A coin is a small object, usually round and flat, used primarily as a medium of exchange or legal tender. They are standardized in weight, and produced in large quantities at a mint in order to facilitate trade. They are most often issued by a government. Coins often have images, numerals, or text on them. Obverse and its opposite, reverse, refer to the two flat faces of coins and medals. In this usage, obverse means the front face of the object and reverse means the back face. The obverse of a coin is commonly called heads, because it often depicts the head of a prominent person, and the reverse is known as tails.

<span class="mw-page-title-main">Gresham's law</span> Monetary principle, "bad money drives out good"

In economics, Gresham's law is a monetary principle stating that "bad money drives out good". For example, if there are two forms of commodity money in circulation, which are accepted by law as having similar face value, the more valuable commodity will gradually disappear from circulation.

<span class="mw-page-title-main">Commodity money</span> Money with value derived from composition from a commodity (such as silver or gold coins)

Commodity money is money whose value comes from a commodity of which it is made. Commodity money consists of objects having value or use in themselves as well as their value in buying goods. This is in contrast to representative money, which has no intrinsic value but represents something of value such as gold or silver, in which it can be exchanged, and fiat money, which derives its value from having been established as money by government regulation.

<span class="mw-page-title-main">Representative money</span> Any type of money that has face value greater than its value as material substance

Representative money or receipt money is any medium of exchange, printed or digital, that represents something of value, but has little or no value of its own. Unlike some forms of fiat money, genuine representative money must have something of intrinsic value supporting the face value.

<span class="mw-page-title-main">Banknote</span> Form of physical currency made of paper, cotton or polymer

A banknote—also called a bill, paper money, or simply a note—is a type of negotiable promissory note, made by a bank or other licensed authority, payable to the bearer on demand. Banknotes were originally issued by commercial banks, which were legally required to redeem the notes for legal tender when presented to the chief cashier of the originating bank. These commercial banknotes only traded at face value in the market served by the issuing bank. Commercial banknotes have primarily been replaced by national banknotes issued by central banks or monetary authorities.

<span class="mw-page-title-main">Irish pound</span> Currency of Ireland before 2002

The pound was the currency of the Republic of Ireland until 2002. Its ISO 4217 code was IEP, and the symbol was £. The Irish pound was replaced by the euro on 1 January 1999. Euro currency did not begin circulation until the beginning of 2002.

In economics, a medium of exchange is any item that is widely acceptable in exchange for goods and services. In modern economies, the most commonly used medium of exchange is currency.

<span class="mw-page-title-main">French franc</span> Former currency of France

The franc, also commonly distinguished as the French franc (FF), was a currency of France. Between 1360 and 1641, it was the name of coins worth 1 livre tournois and it remained in common parlance as a term for this amount of money. It was reintroduced in 1795. After two centuries of inflation, it was redenominated in 1960, with each new franc (NF) being worth 100 old francs. The NF designation was continued for a few years before the currency returned to being simply the franc. Many French residents, though, continued to quote prices of especially expensive items in terms of the old franc, up to and even after the introduction of the euro in 2002. The French franc was a commonly held international reserve currency of reference in the 19th and 20th centuries. Between 1998 and 2002, the conversion of francs to euros was carried out at a rate of 6.55957 francs to 1 euro.

<span class="mw-page-title-main">Indian rupee</span> Official currency of India

The Indian rupee is the official currency in the Republic of India. The rupee is subdivided into 100 paise, though as of 2023, coins of denomination of 1 rupee are the lowest value in use whereas 2000 rupees is the highest. The issuance of the currency is controlled by the Reserve Bank of India. The Reserve Bank manages currency in India and derives its role in currency management on the basis of the Reserve Bank of India Act, 1934.

<span class="mw-page-title-main">Debasement</span> Practice of lowering the intrinsic value of coins

A debasement of coinage is the practice of lowering the intrinsic value of coins, especially when used in connection with commodity money, such as gold or silver coins. A coin is said to be debased if the quantity of gold, silver, copper or nickel in the coin is reduced.

The history of money concerns the development throughout time of systems that provide the functions of money. Such systems can be understood as means of trading wealth indirectly; not directly as with bartering. Money is a mechanism that facilitates this process.

This glossary of numismatics is a list of definitions of terms and concepts relevant to numismatics and coin collecting, as well as sub-fields and related disciplines, with concise explanations for the beginner or professional.

<span class="mw-page-title-main">Shinplaster</span> Paper money of low denomination

Shinplaster was paper money of low denomination, typically less than one dollar, circulating widely in the economies of the 19th century where there was a shortage of circulating coinage. The shortage of circulating coins was primarily due to the intrinsic value of metal rising above the value of the coin itself. People became incentivized to take coins out of circulation and melt them for the true intrinsic value. This left no medium of exchange for the purchase of basic consumer goods such as milk and newspapers. To fill this gap, banks issued low-denomination paper currency.

Japanese currency has a history covering the period from the 8th century AD to the present. After the traditional usage of rice as a currency medium, Japan adopted currency systems and designs from China before developing a separate system of its own.

<span class="mw-page-title-main">Money</span> Object or record accepted as payment

Money is any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular country or socio-economic context. The primary functions which distinguish money are as a medium of exchange, a unit of account, a store of value and sometimes, a standard of deferred payment.

Metallism is the economic principle that the value of money derives from the purchasing power of the commodity upon which it is based. The currency in a metallist monetary system may be made from the commodity itself or it may use tokens redeemable in that commodity. Georg Friedrich Knapp (1842–1926) coined the term "metallism" to describe monetary systems using coin minted in silver, gold or other metals.

<span class="mw-page-title-main">Fiat money</span> Currency not backed by any commodity

Fiat money is a type of currency that is not backed by a commodity, such as gold or silver. It is typically designated by the issuing government to be legal tender. Throughout history, fiat money was quite rare until the 20th century, but there were some situations where banks or governments stopped honoring redeemability of demand notes or credit notes, usually temporarily. In modern times, fiat money is generally authorized by government regulation.

<span class="mw-page-title-main">String of cash coins (currency unit)</span>

A string of cash coins refers to a historical Chinese, Japanese, Korean, Ryukyuan, and Vietnamese currency unit that was used as a superunit of the Chinese cash, Japanese mon, Korean mun, Ryukyuan mon, and Vietnamese văn currencies. The square hole in the middle of cash coins served to allow for them to be strung together in strings. The term would later also be used on banknotes and served there as a superunit of wén (文).

<span class="mw-page-title-main">Daqian</span>

Daqian are large-denomination cash coins produced in the Qing dynasty starting from 1853 until 1890. Large denomination cash coins were previously used in earlier Chinese dynasties and had faced similar issues as 19th-century Daqian. The term referred to cash coins with a denomination of 4 wén or higher.


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  8. Sargent, Thomas. "Commodity and Token Monies" (PDF): 2.{{cite journal}}: Cite journal requires |journal= (help)
  9. "Definition of TOKEN MONEY".
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  12. "to say that coins are token money means that". Retrieved 2021-03-30.
  13. Stannard, Clive (25 March 2022). "Small change in Campania from the Fourth to the First Century BC, and the Newly Discovered Second Punic War Roman Mint of Minturnae". Retrieved 2022-03-25. ...the small units and of copper-based alloys, in which it was possible to make coins of usable size at a relatively low cost...
  14. 1 2 Kuzminski, Adrian (2013). The Ecology of Money: Debt, Growth, and Sustainability. Lexington Books. p. 54. ISBN   9780739177181 . Retrieved 2 January 2017.