Anything that can be used for paying for goods or services. Be it foodgrains, be it taxes, or be it loan repayments.
Technically, money is an abstract idea, and currency is its manifestation. It’s essentially a battery, a store of value or energy.
Money has four functions by definition:
Medium of exchange means that it can be used to facilitate the exchange of goods and services.
Measure of value means that it can be used to measure the value of goods and services in the market.
Standard of deferred payment means that it can be used for repayment of debts.
Store of value means that it can be reliably stored and retrieved for usage.
To facilitate these functions, money needs to have certain properties- fungibility, durability, divisibility, portability, cognizability, and scarcity.
Types of money
Commodity money is a naturally scarce commodity being used for exchange. eg. gold, silver etc.
This is the oldest form of money.
Currency here is the commodity itself. i.e. you can exchange a small bar of gold for 1 kg of rice.
With time, commodities were standardises to have standard values of currency. Here came standardised gold, silver and copper coins issued or minted by kingdoms.
Representative money is an evolution of commodity money.
Owing to scarce nature of commodities, it wasn’t feasible to carry them all the time.
The underlying money still remained a commodity, but it’s manifestation, i.e. currency evolved.
Another layer of abstraction got built- standard coins, certificates and paper notes were commissioned. The value of this currency is proportional to the commodity backing it.
Think of it like- the king kept all the gold, and issued you paper with his signature that this paper is worth this amount of gold.
Fiat money is money that has no intrinsic value or commodity backing it, but is a money purely because of a government order.
Typically, fiat money is issued as notes and coins, and therefore, can be created or destroyed.
By virtue of being government backed, it can have rules defined for replacement in case of damage.
Digital money is an umbrella term for multiple things.
First, digital currencies issued by governments that are one manifestation of fiat money. Most of the money issued by governments resides in bank databases as digital currencies.
Second, non-national digital currencies issued by corporations or decentralized currencies like Bitcoin. These have very limited usecases.