Money

The word money comes either from the Latin word "monere" which literally means "remind", "warn" or "instruct" or the Greek word "moneres" meaning "alone", "unique". Money can be defined as anything that is generally accepted as payment for goods or services or in the repayment of debts.

The functions of money

In any society money serves three primary functions:

1. Money as a medium of exchange - primary function of money recognizing medium of exchange as anything accepted as payment for products, services, and resources
2. Money as a measure of value - a measure of value is a single standard or "yardstick" used to assign values to and compare the values of products, services and resources
3. Money as a store of value - money can function as a means of retaining and accumulating wealth

Characteristics of Money

Apart from the functions mentioned above, money must possess the following five characteristics:

1. Divisibility - the unit of money must be divisible into smaller units to accommodate small purchases as well as large ones
2. Portability - money must be light and small enough to be carried easily
3. Stability - money has to retain its value over time
4. Durability - money should be strong enough to last through reasonable usage
5. Difficulty of counterfeiting - money has to be difficult to imitate or to fake; thus countries should do their best to ensure that it is hard to reproduce their currency

Evolution of the payment system

The steps in evolution of money are as follows:

1. Commodity money - money made up of precious metals or another valuable commodity
2. Paper currency - pieces of paper that function as medium of exchange (convertible into coins or precious metal)
3. Fiat money - paper currency decreed by governments as legal tender but not convertible into coins or precious metal
4. Cheques (checks) - instruction from you to your bank to transfer money from your account to someone else's account when she deposits the check
5. Electronic money - called as "e-money"; substitute for checks and cash, time-saving; money that exists only in electronic form

See also:

• Money emission

Examples of Money

• Cash: Cash is the most common form of money, and includes coins and paper bills issued by governments. Cash is accepted almost everywhere and is easy to use.
• Checks: A check is a written order to a financial institution, such as a bank or credit union, to pay a certain amount of money from an account. Checks are accepted in most stores and can be used to pay bills or purchase goods and services.
• Credit/Debit Cards: Credit and debit cards are a form of payment that is becoming increasingly popular. Credit and debit cards are accepted in many stores and can be used to pay for goods and services. They are also used to withdraw money from ATMs.
• Electronic Transfer: Electronic transfer is a form of payment where money is transferred from one bank account to another. This form of payment is becoming increasingly popular as it is fast and secure.
• Cryptocurrency: Cryptocurrency is a digital currency that is secured with cryptography. Examples of cryptocurrencies include Bitcoin, Ethereum, and Ripple. Cryptocurrencies are becoming more widely accepted as a form of payment, although they are not yet accepted in all places.

Advantages of Money

The use of money has many advantages, which include enabling the exchange of goods and services, providing a medium of exchange with a reliable store of value, and promoting economic development.

• Money allows individuals to purchase goods and services without having to barter, which can be inefficient and inconvenient. By providing a medium of exchange, individuals can specialize in their preferred areas of trade and purchase goods and services from other individuals and organizations.
• Money is also a reliable store of value, allowing individuals to save and invest money for future use. This ensures that individuals can access goods and services in the future, even if their income level decreases or their wealth is depleted.
• Money also promotes economic development by providing individuals and businesses with the resources needed to invest in projects and hire employees. Money facilitates the ability to save and invest, enabling individuals and businesses to grow, create jobs, and innovate. This helps to drive economic growth, resulting in better living standards for everyone.

Limitations of Money

Money, while a valuable resource and form of exchange, is not an infinite or perfect solution. It has several limitations, including:

• Inflation: Money can lose its value over time due to inflation, a phenomenon caused by an increase in the supply of money relative to the goods and services in the economy. This can lead to a decrease in the purchasing power of money.
• Lack of liquidity: Money is not always easily accessible. It can be difficult to find buyers for goods and services, or to find lenders in times of need.
• Unstable store of value: Money is an unstable store of value as its value can fluctuate due to economic factors, such as changes in interest rates and political instability.
• Limited resources: Money is limited by the availability of resources, such as gold, silver, or other precious metals. It is also limited by the amount of currency available in circulation.
• Limited purchasing power: Money has a limited purchasing power, as it can only be used to buy goods and services that are available in the marketplace.

Other approaches related to Money

Money is an important part of everyday life, and it is essential to understand different approaches to money. This includes economic, social, political, and cultural approaches to money. Below are a few of these approaches:

• Economic Approach: This approach looks at money from an economic perspective and considers how it functions in the context of markets, supply and demand, and production. It examines how money is created, used, and exchanged, and how it affects the economy.
• Social Approach: This approach looks at money from a social perspective and examines how it influences relationships, values, and social norms. It examines how money is distributed and how it affects the distribution of power in society.
• Political Approach: This approach looks at money from a political perspective and examines how it influences decision-making, policy, and government activity. It examines how money is taxed and regulated, and how it affects the functioning of the government and political institutions.
• Cultural Approach: This approach looks at money from a cultural perspective and examines how it influences beliefs, customs, and rituals. It examines how money is used in different cultures, and how it affects the way people think and behave.

In summary, money has a variety of economic, social, political, and cultural approaches. Each of these approaches examines money from a different perspective and reveals different aspects of its use and influence on society.

Money — recommended articles

Fiduciary money — Parallel economy — Money emission — Net Borrower — Global demand — Repatriable — Austrian theory of money — Local market — Service economy

References=

• Cagan, P. (1958). The demand for currency relative to total money supply. In The Demand for Currency Relative to Total Money Supply (p. 1-37). NBER.

Author: Aneta Rudniak