In your daily life, you hear about money, but do you know what it is? You regularly handle money, but do you know what it represents and what it is used for? If you are an economics layperson and are thirsty for answers to these questions, read this article.
Definition of money
By definition, money is a unit of account, a standardized means of expressing the value of flows and stocks. It is a recognised means by which various economic and commercial exchanges are carried out. Throughout history and the evolution of society, we have known different types of money. These have included precious metals such as gold, shells, cowrie shells and even salt. Today we use coins and banknotes printed directly by banks. We also have the possibility to use electronic currencies since more or less recent times.
The different functions of money
Present in our everyday lives, money plays three essential functions:
It facilitates exchanges. Apart from barter, which is very rarely practiced, the universally accepted and widespread means of exchange is money. It allows goods to be bought and disposed of.
Money serves as a store of value. Thanks to this mechanism, money can travel through time and continue to be used. Even though it may change its value from time to time.
Money also serves as a unit of measurement. It is on the basis of money that it is possible to express the cost of goods and services. It is also on the basis of money that authorized institutions manage to determine the gross domestic product (GDP) of a country.
Forms and characteristics of money
According to economists, there are two main families of money namely legal tender and scriptural money. Legal tender means coins and banknotes. In short, it is cash. When we talk about scriptural money, we are talking about accounting entries. As far as characteristics are concerned, a currency must be easily accessible to all and available throughout the territory where it is accepted. The currency must be easy to transport and have features that make it difficult to counterfeit.