Economics offers various definitions for money, though it is now commonly considered to be any good or token that functions as a medium of exchange, store of value, and unit of account. Some authors explicitly require money to be a standard of deferred payment, too [1]. In common usage, money refers more specifically to currency, particularly the many circulating currencies with legal tender status; deposit accounts denominated in such currencies are also considered part of the money supply.

The use of money provides an alternative to bartering, which is often inefficient because it requires a coincidence of wants between traders. The emergence of some form of money is a natural market phenomenon[citation needed] observed repeatedly across civilizations and is not dependent on any central authority or government[citation needed]. The use of money in society thus encourages trade which increases the division of labour, which increases productivity and overall wealth.

Commodity money such as gold or silver was amongst the earliest forms of money to emerge. Under a commodity money system, the objects used as money have intrinsic value, i.e., they have value beyond their use as money. For example, gold coins retain value as gold even if inflation damages their value as currency, whereas paper notes are only worth as much as the monetary value assigned to them. Commodity money is usually adopted to simplify transactions in a barter economy, and so it functions first as a medium of exchange[citation needed]. It quickly begins functioning as a store of value[citation needed], since holders of perishable goods can easily convert them into durable money.

Fiat money is a relatively modern invention. A central authority (government) creates a new money object that has negligible inherent value. The widespread acceptance of fiat money is most frequently enhanced by the central authority mandating the money's acceptance under penalty of law and demanding this money in payment of taxes or tribute. At various times in history, government-issued promissory notes have later become fiat currencies (e.g. US Dollar) and fiat currencies have gone on to become a form of commodity currency (e.g. Swiss Dinar)