Anonymous
Anonymous asked in Business & FinanceOther - Business & Finance · 1 decade ago

What do you mean by token currency?

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  • Anonymous
    1 decade ago
    Best answer

    Token and Notational Money

    As befits its central role in our market economy, money has been the subject of much consideration. As researchers build new electronic forms of money, it is important to keep fundamental monetary properties in mind. This paper examines these properties for both traditional and electronic commerce.

    Money can be defined either in terms of the functions it performs, or in terms of its representative forms. Scholars generally agree that money serves three major functions. Perhaps most important is its role as a medium of exchange. By replacing barter with a two step process of selling one good for money, which is then used to purchase another good, exchange transactions are greatly simplified. As a standard of value, money units are used to measure the worth of different goods or services so that their value can be compared in terms of a single numeraire. Finally, money serves as a store of value. Wealth may be stored more easily in the form of money than as cattle or loaves of bread.

    Consistent with its function as a store of value, many of the earliest forms of money consisted of valuable objects which people were willing to take in trade. Thus the gold in a gold coin may have a value as a commodity comparable to its monetary worth. Other valuable items which have been used as money include jewels, shells, arrowheads and other tools (Haddon, 1949).

    Eventually, money in the form of an asset with intrinsic value yielded to the need for money convenient to transport, exchange, and store. Thus, the use of tokens having no intrinsic value became common. The first paper money in the United States was legally negotiable notes issued by banks which required payment on demand of an equivalent value of gold (Rubin, 1994). These notes had no intrinsic value, but were readily convertible to intrinsically valuable money.

    Easily convertible notes imposed some of the same limits on economic growth as intrinsically valuable coins. Thus easily convertible notes yielded to the use of trusted paper. While today's dollar may still serve as a store of value, currency itself no longer consists of tokens with intrinsic value. Since 1971, United States currency has not been convertible to gold (Rubin, 1994). The use of mere pieces of paper as a medium of exchange, rather than tokens with intrinsic value, rests on a foundation of trust among the public that these pieces of paper will continue to be accepted in exchange and will serve as a stable store of value. A loss of trust could lead to a rapid return to barter, as is seen in countries where hyperinflation has rendered paper currency worthless overnight.

    While notes are considerably more convenient than gold coins, they are still difficult to exchange in large amounts, and transport or store securely. Currently, most money consists not of pieces of paper currency, but rather of notations in the ledgers of depository institutions such as banks. We refer to this as notational money to distinguish it from token money or currency. Exchanges based on notational money require the debiting of one party's account and the crediting of another party's account. Institutions accepting demand deposits are required by law to be prepared to convert these notational deposits into currency on demand, thus providing convertibility between demand deposits and currency. Today, the amount of money which exists solely in the records of depository institutions vastly exceeds the value of currency in circulation (Heggestad, 1993).

    A variety of instruments are used to instruct a bank to transfer notational money between accounts; the most common is a check. A complex system involving the Federal Reserve as a clearinghouse supports check clearing when accounts are held at different banks. In the last several decades, instructions to transfer notational money between accounts are increasingly sent electronically: wire transfers, ATM transactions, or more generally, Electronic Funds Transfer.

    Notational and token currency are boundary conditions. For example, cashiers checks are notational money, but they share some of the properties of token money. There are also interfaces between the two: ATM machines and bank tellers exchange notational currency for token currency.

  • mcvey
    Lv 4
    3 years ago

    Token Money

  • 1 decade ago

    well, I don't have a clue what the above guy is talking about, but to me token currency is what you have as a token (to board a bus for example)

  • 1 decade ago

    Token Currency is paper money and coins. i.e. tokens

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  • Sheryl
    Lv 4
    4 years ago

    When a group of people are all one way, and they have one member of the group that represents a difference, they call that the "token". For example, a group of white kids have one black friend; he is their "token" black. Really hope that isn't the case with you, because that would be just ignorant.

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