What is Money

Money is something which is widely accepted in payment for goods and services and in settling debts. People have used many items as money, such as whale’s teeth, circular stones, elephant-tail bristles, gold coins, furs, cigarettes, and so on as a means of payment.  Nowadays, money consists of two items: currency (coins and paper money) and bank money (chequing or saving account deposit in a bank). Now we are going to look at the three functions of money.

1.Medium of exchange

Money is a medium of exchange that is usable for buying and selling goods and services. People have exchanged one good or service for another good or service through barter, say, wheat for apples. But barter poses serious problems for the economy because it requires a coincidence of wants between the buyer and seller. So that people use money to facilitate exchanges of goods and services.

2.Unit of account

A unit of account is a standard numerical unit of measurement of the market value of goods, services, and other transactions. Like, in Canada we use dollars to measure the value of goods and services.

3.Store of value

To act as a store of value, money must be able to be reliably saved, stored, and retrieved – and be predictably usable as a medium of exchange when it is retrieved. The value of the money must also remain stable over time that enables people to transfer purchasing power from the present to the future.

We value the money because its acceptability and its legal tender. We accept currency and deposits because we are confident it will be exchangeable for real goods, services, and resources when we spend it. The paper money is also known as a fiat money, because the government has declared it as legal tender. We can see the bill contains the statement “This note is legal tender for all debts, public and private”.

The word "money" is believed from Uni (which means "the one", "unique", "unit", "union", "united") and "moneta" either from the Latin word "monere" (remind, warn, or instruct) or the Greek word "moneres" (alone, unique).