Which of the following best describe token money?

Answer Details

Token money is any form of money whose face value (the value stamped on it) is greater than the intrinsic value of the material from which it is made. For example, a coin stamped with a value of 100 naira may contain metal worth only a few naira. The difference between the face value and the material value is known as seigniorage, which represents profit to the issuing authority.

Almost all modern coins and banknotes are token money. A paper note may cost very little to print, yet it carries a face value of hundreds or thousands of currency units. The public accepts it not because of the paper's worth, but because the government declares it legal tender and guarantees its value.

The other options describe different concepts:

• Currency and coins in circulation describes money supply broadly, not the defining feature of token money.
• Coins and notes made of poor quality materials focuses on material quality rather than the relationship between face value and intrinsic value.
• Money in the vault of commercial banks refers to bank reserves, not a type of money classification.

The defining characteristic of token money is the gap between its face value and its material content.