Forms of money

The idea that anything can be money if we all just believe hard enough in it, has been very popular among some regimes and politicians. Yes, of course, anything can be used as money, just like anything can be used as toilet paper, but choices have consequences. — Saifedean Ammous. 

Free market money

Its creation is not monopolized, its adoption is voluntary.

Examples: collectibles, rai stones, gold or bitcoin.

Fiat money

The word "Fiat" originates in Latin, meaning decree, order.

The currencies issued by central banks are fiat money, like the US dollar or euro.

It is imposed by the state, usually by decrees that establish legal privileges like legal tender laws.

Anti-counterfeit laws enforce a monopoly for its production that allows the State to extract seigniorage (an indirect tax on money adopters): the difference between its purchasing power and its production cost. 

To guarantee a privileged distribution when it is first introduced, the exchange of the previous form of money, such as the exchange of gold for US dollar in 1933, may be mandatory.

It is the currency used for public expenses, which privileges its adoption and smooths its distribution. 

 

Legal tender is a medium of exchange recognized by law to be valid for extinguishing any debt when offered ("tendered"), although in some countries is possible to establish specific agreements to the contrary. Legal tender status also implies that it is the Standard of Value of the State, so any official contract is denominated in that currency and it is the required Unit of Account to calculate taxes, which creates demand.