Money Explained


Geld Uitleg is the medium of exchange that allows us to purchase the goods and services we need without bartering. It also serves as a unit of account and store of value. The three functions of money make it possible for people to trade with each other and with the economy to grow. The type of assets that serve as money have changed over time. They have ranged from precious metals to paper notes to electronic records. However, the basic function of money has remained unchanged.

A good or service must be something that the person selling it and the buyer both need. This is called the coincidence of wants. During the time before the invention of money, people traded the goods they had for the goods that the other party needed. The problem with this method was that one person had to own the goods they wanted in order to get them from another person. Money solves this problem by allowing the person who needs a good to compensate the owner of the good for it. Money also eliminates the need to carry around tradable goods that may spoil or go bad over time.

Money and Society: Exploring Economic Systems and Inequality

In addition to the characteristics that allow it to serve as a medium of exchange, unit of account and store of value, money must be widely accepted. Kent cigarettes, for example, were once a form of money in Romania under Communist Party rule. Other examples include mackerel, cattle and even gold. To be considered as money, an asset must have the following characteristics:

Durability, divisibility and transportability are the properties that give money its value. Having these properties allows money to be used for longer periods of time. This increases the volume of transactions and growth of the economy. It also reduces transaction costs and allows for the use of other assets as substitutes for money in case of emergency.…