Token money

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Token money is money whose face value exceeds its cost of production. Most modern coins used in circulation are token money, as are paper notes.

Token money has a strong privacy feature in that it works as money without the intervention of any other party in each transaction between two parties. Privacy makes money safe from interference by more powerful third parties. Where property rights are not strong, privacy is required to protect assets and permit trade, and token money works well in this regime.

Hybrid forms[edit]

There are some interesting hybrid forms of token money. Chaumian blinded coins is a form of financial cryptography invented to achieve privacy and thus safety in money over the Internet. In this form, a digital packet is a token that can be passed from hand to hand over a network. However, to defend against infinite copying, the coin should be rolled over at the server in an exchange for a fresh coin, so these forms of token money are at best a simulation of physical tokens, as they permit traffic analysis.

Another simulation of token money is that of smart card money. In this system, the smart card is a token that can be carried, and the money is on the card. However the underlying system has account money on the card, and most smart card money systems employ sophisticated tracking software in order to ensure the safety of the system at the expense of the privacy of the transactions.


Token money is also money whose face value exceeds its cost of production, i.e. the intrinsic value is lower than the extrinsic value. This means that the actual worth of a note or coin is much less than what we use it for. See fiat money and bullion. The cost of production of token money is less than its actual value.

See also[edit]