The Definition of Money


The Definition of Money

The pieces of paper that we know as dollars, euros, yuans, or renminbi are only valuable because we all agree that they are. The value of these pieces is not intrinsic to them, but rather is a convention that has been so strong throughout history that it has endured wars and inflation.

The first Geld Uitleg of money is as a medium of exchange. It enables us to buy and sell things without having to barter for them. That means that when you go to the grocery store, instead of trading your home-grown tomatoes for a loaf of bread, you hand the cashier $20 and you’re done.

“From Barter to Bitcoin: A Brief History of Money

Another important function of money is as a store of value. When your grandmother sends you a $20 bill in the mail, you can hold onto it until you decide what to spend it on. If you didn’t have the option of storing the $20 bill, it would have no value at all.

Finally, money acts as a unit of account. This allows goods and services to be compared and measured. Without a common unit of account, there would be no way to know whether you got a good deal on a MacBook Pro.

While any asset can serve as a medium of exchange, to qualify as money it must have three additional characteristics: durability, divisibility, and transportability. We can use the definition of money outlined above to distinguish between commodity money (beaver pelts, dried corn) and fiat money (government-issued currency). The latter is durable because it can be reproduced indefinitely, divisible because it can be divided into smaller units, and transportable because we can carry it with us.

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