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Token money, or token, is a form of
money 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 ar ...
that has a lesser intrinsic value compared to its
face value The face value, sometimes called nominal value, is the value of a coin, bond, stamp or paper money as printed on the coin, stamp or bill itself by the issuing authority. The face value of coins, stamps, or bill is usually its legal value. Howe ...
. Token money is anything that is accepted as money, not due to its intrinsic value but instead because of custom or legal enactment. Token money costs less to produce than its face value. 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. A gold coin is not considered token money. The Token money system has been adopted in many businesses around the world as an effective way to exchange value between companies and customers. Token money as a system is predominantly used in mobile games, but is also used in the realm of e-commerce. Token money is similar to
fiat money Fiat money (from la, fiat, "let it be done") is a type of currency that is not backed by any commodity such as gold or silver. It is typically designated by the issuing government to be legal tender. Throughout history, fiat money was sometim ...
which also has little intrinsic value, however they differ in that token money is a limited
legal tender Legal tender is a form of money that courts of law are required to recognize as satisfactory payment for any monetary debt. Each jurisdiction determines what is legal tender, but essentially it is anything which when offered ("tendered") in ...
. 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 In economics, goods are items that satisfy human wants and provide utility, for example, to a consumer making a purchase of a satisfying product. A common distinction is made between goods which are transferable, and services, which are not ...
and services (prices) within a sovereign country or the same economy, as well as a particular commodity to pay off
debt Debt is an obligation that requires one party, the debtor, to pay money or other agreed-upon value to another party, the creditor. Debt is a deferred payment, or series of payments, which differentiates it from an immediate purchase. The ...
s.Orchard. (2017). Token. Atlanta Review, 23(2), 76–. 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 A blockchain is a type of distributed ledger technology (DLT) that consists of growing lists of records, called ''blocks'', that are securely linked together using cryptography. Each block contains a cryptographic hash of the previous block, ...
technology Technology is the application of knowledge to reach practical goals in a specifiable and reproducible way. The word ''technology'' may also mean the product of such an endeavor. The use of technology is widely prevalent in medicine, scien ...
are also a form of token money.


History

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. This established the principle of token money, which is the nature of coinage in contemporary society.
Plato Plato ( ; grc-gre, Πλάτων ; 428/427 or 424/423 – 348/347 BC) was a Greek philosopher born in Athens during the Classical period in Ancient Greece. He founded the Platonist school of thought and the Academy, the first institution ...
distinguished between tokens and commodities. 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 David Ricardo (18 April 1772 – 11 September 1823) was a British political economist. He was one of the most influential of the classical economists along with Thomas Malthus, Adam Smith and James Mill. Ricardo was also a politician, and a ...
suggested issuing token money as long as it did not affect commodity standard.


Physical tokens

Token money has less intrinsic value compared to its
face value The face value, sometimes called nominal value, is the value of a coin, bond, stamp or paper money as printed on the coin, stamp or bill itself by the issuing authority. The face value of coins, stamps, or bill is usually its legal value. Howe ...
. If the token money is metallic it is commonly made out of cheaper metals such as copper and nickel.Tsoukalas, & Falk, B. H. (2020). Token-Weighted Crowdsourcing. Management Science, 66(9), 3843–3859. https://doi.org/10.1287/mnsc.2019.3515 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. With token money, exchanges are not considered fully complete because the exchange of value is not equivalent. Value is hoped to be rendered at some future time. Examples of this include bills of exchange or
negotiable instrument A negotiable instrument is a document guaranteeing the payment of a specific amount of money, either on demand, or at a set time, whose payer is usually named on the document. More specifically, it is a document contemplated by or consisting of a ...
and certificates. Token money does not have free coinage.


See also

*
Bearer instrument A bearer instrument is a document that entitles the holder of the document to rights of ownership or title to the underlying property, such as shares or bonds. Unlike normal registered instruments, no record is kept of who owns bearer instruments ...
*
Bullion Bullion is non-ferrous metal that has been refined to a high standard of elemental purity. The term is ordinarily applied to bulk metal used in the production of coins and especially to precious metals such as gold and silver. It comes fro ...
* Store of value


References

{{Means of Exchange Money