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Money is any item or verifiable record generally accepted as payment for goods and services and debts such as taxes in a particular country or socio-economic context.
The main functions of money are distinguished as a medium of exchange, a unit of account, a store of value, and sometimes a standard of deferred payment. Anything or any verifiable record that fulfills these functions can be considered money.
What is Money?
In simple words, money can be anything that can be used as a means of exchange for the payment of products and services. It is an alternate discovery of the bartering system in the past.
We need money; without it, the wheel of life does not work. Bread, clothes, house, education, health, luxuries of life, mobile, car, electricity, gas—everything has to be bought with money, and it is very important to make money. Still, only money can be made by running after these luxuries.
Currency refers to something that can be bought or sold for other things. In the past, currency was made of different metals. With the invention of the computer, paper money is gradually being converted to digital currency. Every country in the world has its currency and name.
Three Main Types of Money
Commodity Money
As we defined, money can be anything; here, commodity money is the physical form of money and has its intrinsic value. Having intrinsic value here means we can use the commodity money as a medium of exchange and in other forms as well;
For example, Gold is commodity money and we can use gold as a medium of exchange and use it for Jewelry as well. Commodity money is the oldest form of money. Commodity money is closer to the barter system used in ancient times. Where goods were exchanged for goods.
Fiat Money
Fiat money is the currency notes that any country’s Government or state bank produces. Unlike commodity money, fiat money has no intrinsic value. Its value is the only trust the Government builds by declaring it a legal medium of exchange.
State banks or the Government is the full controlling authority of the fiat money. It can produce as much as and when needed; therefore, in fiat money, there can always be the risk of high inflation.
Commercial Bank Money
Commercial bank money is the debt generated by commercial banks. For every deposit of Rs.100, the bank keeps only Rs.10 to satisfy the customer’s short-term cash withdrawals and the remaining amount of Rs.90.the bank may give loans to others, so there is a creation of assets of Rs.90 in the bank, but actually, it’s not an asset. It’s a debt generated by the bank.
What are the Properties of Money?
Money should be fungible, durable, portable, recognizable, and stable to be most useful. These properties reduce the transaction costs of using money by facilitating exchange.
Money should be interchangeable.
The word fungible refers to the quality that allows one thing to be exchanged, replaced, or returned for another, assuming an equivalent value. Therefore, the monetary units should be interchangeable.
For example, metal coins should be of standard weight and fineness. Commodity money should be relatively uniform in quality. Trying to use non-fungible goods as money results in transaction costs involving the individual valuation of each good unit before an exchange occurs.
Money should be durable.
Money should be durable enough to retain its utility for many future exchanges. Perishable goods or goods that degrade rapidly due to various exchanges will be less useful for future transactions. The effort to use short-term consumer goods as money is contrary to the necessary future use and value of money.
Money should be portable.
Money should be easily carried and distributed to carry or transport valuable quantities. For example, trying to use goods that are difficult or inconvenient to carry as money may require physical transportation, which results in transaction costs.
The money supply should be stable.
The supply of an item used as money should be relatively constant over time to avoid fluctuations in value. Using an unstable commodity as money creates transaction costs because of the risk that its value may rise or fall due to scarcity or surplus before the next transaction.
Money should be recognizable.
The authenticity and quantity of goods should be readily apparent to users so they can easily agree to the exchange terms. Using unrecognized goods as money can lead to transaction costs related to verifying the goods and agreeing on the quantity needed for the exchange.
Conclusion:
In this article, you know all the information about money. Money is an item of value that allows people and institutions to engage in transactions that exchange goods or services. Money must be convertible, convenient to carry and recognized as legitimate by all. , physically long-lasting and have a stable value.
Money comes in many forms, including precious metals, currencies, and substitutes. Cryptocurrencies have some characteristics of money but operate without a central authority and are not backed by governments. I hope you enjoy this blog post. Please share this article with your family and friends if you like it. Thank you!
Frequently Asked Questions
Money is any form of currency used to pay for goods and services. It can also be used as an exchange of value. Most countries have a national currency. Others use other currencies, such as the U.S. dollar, euro, or yen.
Cash, credit cards, coins, and checks. All these have monetary value and can be used to pay for things.
Money is a unit of measurement and a medium of exchange used by governments, businesses, and individuals to facilitate trade and payment. Paper currency, coins, or electronic transactions often represent money.
Money is a medium of exchange used by people throughout the world. Money allows individuals to purchase goods and services from one another and helps people accumulate resources to meet their needs and wants.
Money is paper or metal used for transactions such as buying items, saving money, or paying bills. Governments create money through the printing press or minting facility. Many types of money exist, including bills, coins, currency notes, and stored value cards.
Money studies the exchange of goods and services. You can study money in college by reading economics books and taking classes.
Money is made in several different ways. You can make money through selling goods and services (like a doctor making money by treating patients), through trading (like a business owner making money by trading in goods) and through investing (like a stock broker making money by buying stocks).
Money is the source of all our living needs so we would be dead without it. It is the universal currency which can be exchanged for anything else at any time.
It’s called currency. Paper money is a form of payment that can be used to pay for goods or services. Paper money is often called cash money or notes.
