In economics, there are various definitions for money, though it is now commonly considered to be any good or token that fulfills the money functions: to be a medium of exchange, store of value, and unit of account. Some authors explicitly require money to be a standard of deferred payment, too. 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 observed repeatedly across civilizations and is not dependent on any central authority or government. Indeed, the division of labour in any but the most basic of forms cannot occur without it.

Commodity money

Commodity money was amongst the earliest forms of money to emerge. Under a commodity money system, the object used as money is actually useful in everyday life (has intrinsic value). It is usually adopted to simplify transactions in a barter economy; thus it functions first as a medium of exchange. It quickly begins functioning as a store of value, since holders of perishable goods can easily convert them into durable money.

Fiat 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).