Money as an Important Commodity

We established a strong point on the monetary economy in our last post, and today we will be understanding the functions of money. Starting with what money is, it is a description of a medium of exchange that is accepted universally in terms of the exchange of goods and services.

Source

It is very crucial that we understand the idea of money. I mean, if we love and enjoy spending money every day, why not take out a little time to understand it?

Over the years, different items have been used as a description for money, like gold and silver, agricultural products, and coins, all existing in their different forms. Primarily, money serves three basic purposes.

• Money is a medium of exchange; it serves as an intermediary in trade. The item called money solves the complications attached with the previously used barter system. It creates a standard for a more simplified means of exchange of services and goods.

Pixabay

• Money is also a store of value; it maintains value for a long period, creating the space for the saving and storing of wealth. Although the strong power of inflation could try to eliminate the strong purchasing power of money, regardless, it still provides a means to save for future spending.

• Money is also a measure of value. With money, we are able to compare different goods and services, making trade more predictable and fair.

For money to be considered money, it has to fulfill the characteristics that provide its value. The first thing is the importance of legal standing, whereby a country or a society has agreed to recognize the asset as a means of monetary value.

Secondly, the value for money has to be widely agreed upon that there should be a standardized price that can be exchanged for goods and services. Finally, for money to be regarded as money, it has to be a scarce commodity. Imagine if we could all pick up money like the way we could easily pick up sand; then there would be no value attached to it at all, but for money to be respectfully regarded as money, it must be scarce with the supply being regulated and controlled and the demand being monitored.

pexels

Money is also in different types;

• We have commodity money, which has intrinsic value; this means it has value in itself and of itself. A good example of commodity money is silver, gold, and precious metals.

• Fiat money is the one declared by the government to be a legal tender but not backed by a physical commodity. It is the declaration that comes from the authority, which is the government, that makes people have trust and confidence in it. The modern-day paper currency we spend is an example of fiat money.

• Bank money is the book credit issued by banks to their depositors. The nature of transactions carried out with it is within the jurisdiction and permission of the bank.

• Digital money is the type enjoyed by the lovers of cryptocurrencies. These types of money exist only in digital form.

Money is an important commodity that we need to study to understand.