Money is defined as a valuable commodity that has general acceptance as a means of exchange and is accepted by the majority of people.
Money is a medium of exchange for goods and services. Money is used to buy things we need or want. Money is also used to save for the future. Money can be in the form of cash, checks, or credit. Money can also be in the form of stocks, bonds, and other investments.
Commodities were the first forms of money since their physical qualities made them appealing as a medium of exchange. In today’s economy, money can refer to government-issued legal currency or fiat money, alternative currencies, fiduciary media, as well as electronic cryptocurrencies.
What are the definitions of Money?
Some economists define money as a unit of account, a store of value, and a medium of exchange. Money is a unit of account if it can be used to price goods and services. Money is a store of value if it retains its purchasing power over time. Money is a medium of exchange if it can be used to buy goods and services.
Other economists define money as anything that serves as a means of payment. Money is anything that can be used to pay for goods and services. Money is anything that can be used to buy or sell goods and services. Money is anything that can be used as a medium of exchange.
According to Wikipedia definition
Money is any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular country or socio-economic context. The main functions of money are distinguished as: a medium of exchange, a unit of account, a store of value and sometimes, a standard of deferred payment.
Origin of the term Money
Moneta is the source of the English word money, which comes from the Latin term Moneta and means “coin.” The Latin term is said to have been coined in a temple of Juno on Capitoline which one of Rome’s seven hills. Juno was frequently connected to money in the ancient world.
The mint of Ancient Rome was based in the temple of Juno Moneta at Rome. The name “Juno” may have derived from the Etruscan goddess Uni (which means “the one,” “unique,” or “unit”), and “Moneta” from Latin words such as monere (“remind”) or moneres (“alone, unique”). In the Western world, the term specie has been used to describe coin-money since it derives from Latin in specie, which means ‘in-kind.’
History of Money
Bartering may have begun more than 100,000 years ago, but there is no evidence of a society or economy that depended on barter alone. Non-monetary societies, on the other hand, operated on a foundation of gift and debt. Barter took place most frequently between complete strangers or potential foes.
Commodity money began to be used in many countries across the world over time. The Mesopotamian shekel was a unit of weight that depended on the mass of barley grains. Around 3000 BC, the word “money” was first used in Mesopotamia. In various parts of the world, including North America, South America, Asia, Africa and Australia, people utilized shell money – frequently cowries (Cypraea moneta L. or C. annulus L.).
The Lydians were the first to employ gold and silver currencies, according to Herodotus (484-425 BC). These first stamped coins are thought to have been produced around 650 to 600 BC by modern experts. After the Lydian Money, the Persians and Greeks both started to mint their own coins. Money continued to evolve over time from commodity money, to representative money, then fiat money.
As trade expanded across the world, different commodities were used as money in different parts of the world. Commodities that were commonly used as currency included livestock, cocoa beans, peppercorns, shells, tea and rice.
Some historians believe that even early forms of paper money were first used in China as early as 806 AD. This paper currency was known as ‘flying cash’ because it could be transferred quickly and easily from one person to another.
Representative money is any form of currency that consists of token coins, paper or electronic money that can be redeemed for a commodity of value, such as gold or silver. Fiat Money is currency that a government has declared to be legal tender, but is not backed by a physical commodity. The value of fiat money is based on the faith and credit of the issuing government.
Nowadays Money has changed a lot, we have different types of Money like- Physical Money, Cryptocurrency, etc. Physical money is the most common form of currency in use today. Coins and paper bills are both examples of physical money. A cryptocurrency is a digital asset designed to work as a medium of exchange using cryptography to secure transactions and to control the creation of new units of the currency.
Cryptocurrencies are decentralized, meaning they are not subject to government or financial institution control. Bitcoin, first released as open-source software in 2009, is the best known cryptocurrency. There are now more than 18 million bitcoins in circulation with a total value of over $200 billion as of May 2020. Money has definitely come a long way since its early days.
Types of Money
1. Commodity
Money that takes the form of a commodity with intrinsic value; examples include gold, silver, and other precious metals.
A variety of things have been used as commodity money, including naturally rare precious metals such as gold, conch shells, barley, stones, and other materials that are considered to have worth. The value of commodities money comes from the thing out of which it is made.
2. Representative
Money that consists of token coins or paper currency that can be redeemed for a commodity with intrinsic value; examples include early American colonists’ wampum, certain government-issued bonds, and some private currencies.
The key characteristic of representative money is that each unit is backed by a physical commodity. This commodity can be stored and redeemed for its value when needed.
3. Market-Determined Money
Money whose value is based on market supply and demand factors; examples include modern fiat currencies and some digital currencies.
The value of market-determined money is based on the laws of supply and demand. If there is more money in circulation than there are goods and services to purchase, the value of each unit will go down. Likewise, if there are more goods and services available than there is money to purchase them, each unit of currency will be worth more.
4. Government-Issued Currency
Money that a government has declared to be legal tender; examples include most fiat currencies and some digital currencies.
Government-issued currency is any type of money that a government has declared to be legal tender. This means that the government recognizes it as a valid form of payment for debts and taxes. Most fiat currencies are issued by governments, as are some digital currencies.
5. Fiat Currency
Money that is not backed by a physical commodity and has no intrinsic value; examples include most modern paper currencies.
Fiat currency is any type of money that is not backed by a physical commodity. The value of fiat money is based on the faith and credit of the issuing government. Most modern paper currencies, such as the dollar, euro, and yen, are fiat currencies.
6. Coinage
Money in the form of coins; examples include gold coins, silver coins, and copper coins.
Coinage is a type of money that is made from metal pieces that have been struck by a die. The first coinage was created in China as early as 806 BC. Gold coins, silver coins, and copper coins are all examples of coinage.
7. Paper
Money in the form of paper bills or notes; examples include dollar bills, euro notes, and yen notes.
Paper money is a type of currency that is made from paper bills or notes. The first paper money was created in China during the Tang Dynasty (618-907 AD). Dollar bills, euro notes, and yen notes are all examples of paper money.
8. Commercial bank money
Money that is created by private banks when they make loans; examples include checking account balances and savings account balances.
Commercial bank money is any type of money that is created by private banks when they make loans. Checking account balances and savings account balances are two examples of commercial bank money.
9. Digital or electronic
Money that is in the form of digital or electronic data; examples include Bitcoin, Ethereum, and Litecoin.
Digital or electronic money is any type of money that is in the form of digital or electronic data. Bitcoin, Ethereum, and Litecoin are all examples of digital or electronic money.
Properties required by Money
Some of the properties required by the money are
1. Fungible
Money must be able to be divided into smaller units and recombined into larger units without losing its value. For example, one dollar can be divided into 100 pennies, or 10 dimes, or four quarters.
Fungibility is the property of money that allows it to be divided into smaller units and recombined into larger units without losing its value. For example, one dollar can be divided into 100 pennies, or 10 dimes, or four quarters.
2. Durability
Money must be able to withstand the elements and be long-lasting. For example, the paper money should not fade or tear easily, and coins should not corrode easily.
Durability is the property of money that allows it to withstand the elements and be long lasting. For example, the paper money should not fade or tear easily, and coins should not corrode easily.
3. Portable
Money must be easy to transport from one place to another without losing its value. For example, paper money can be carried in a wallet, and coins can be carried in a purse or pocket.
Portability is the property of money that allows it to be easy to transport from one place to another without losing its value. For example, paper money can be carried in a wallet, and coins can be carried in a purse or pocket.
4. Recognizable
Money must be easily identifiable as such. For example, the paper money should have distinctive markings, and coins should have different shapes and sizes.
Recognizability is the property of money that allows it to be easily identifiable as such. For example, paper money should have distinctive markings, and coins should have different shapes and sizes.
5. Stable
Money must have a stable value. For example, the value of a dollar should not fluctuate wildly from day to day.
Stability is the property of money that allows it to have a stable value. For example, the value of a dollar should not fluctuate wildly from day to day.
Money needs all these properties for it to function properly in an economy. Money is essential for an economy to function because it provides a way for people to exchange goods and services.
Functions of Money
Gold and silver coins were once used as currency. In our modern world, money is no longer a physical commodity like gold or silver. Money is now an abstract concept, and the way it is created and used is very different from even a few hundred years ago.
Money is any object that is generally accepted as payment for goods and services or repayment of debts in a given country or socio-economic context.
The main functions of money are distinguished as a medium of exchange, a unit of account, a store of value, and sometimes, a standard of deferred payment.
1. Unit of Account
Money serves as a unit of account, which means it is a way to measure the value of goods and services. For example, we can say that a car costs $20,000.
2. Store of Value
Money serves as a store of value, which means it can be saved and used in the future. For example, you may save money for a rainy day, or for retirement.
3. Medium of Exchange
Money serves as a medium of exchange, which means it is used to buy goods and services. For example, you may use the money to buy a new car.
4. Standard of Deferred Payment
Money serves as a standard of deferred payment, which means it can be used to make payments over time. For example, you may take out a loan and agree to pay it back over a period of time.
How Money Works
Money is created when a government prints paper money or mints coins. The government also regulates the amount of money in circulation to ensure that there is enough money to meet the needs of the economy.
When people use money to buy goods and services, they are actually exchanging one type of currency for another. For example, if you use U.S. dollars to buy a car from someone in Japan, you are exchanging your currency for Japanese Yen.
Money creation and use are now controlled by central banks like the Federal Reserve in the United States. This federal reserve system is called fractional reserve banking, and it’s how most contemporary money systems work.
While this system has its advantages, there are also some disadvantages to be aware of. In particular, fractional reserve banking can lead to bad money. This happens when the central bank creates too much money, causing inflation and devaluing the currency. It’s important to be aware of these potential problems so that you can make informed decisions about where to keep your money.
What Is the Difference Between Hard and Soft Money?
Hard money is a currency that is backed by a government or other entity. Hard money is usually available in the form of coins or paper bills.
Soft money is a currency that is not backed by a government or other entity. Soft money is usually available in the form of electronic funds, such as credit or debit cards.
What Is the Difference Between the M1 and M2 Money Supplies?
The M1 money supply is the total amount of hard currency and coins in circulation. The M2 money supply is the total amount of hard currency, coins, and soft currency in circulation.
M1 Money Supply = Hard Currency + Coins
M2 Money Supply = M1 Money Supply + Soft Currency
Creation of money
Money is produced in two ways in today’s economic systems:
The Central Bank creates money by minting coins and printing banknotes, which is known as narrow money (M0).
The money produced by private banks through the recording of loans as deposits of borrowing customers, with limited assistance indicated by the cash ratio, is referred to as bank money (M1/M2). Bank money is presently being created in the form of electronic money.
Monetary Policy
Money supply and demand are regulated by a country’s monetary policy. Monetary policy is the process by which a government or other entity regulates the money supply.
Monetary policy can be expansionary or contractionary. Expansionary monetary policy increases the money supply, while contractionary monetary policy decreases the money supply.
Expansionary monetary policy is used to stimulate the economy, while contractionary monetary policy is used to slow the economy.
Financial Crimes
Money laundering is the process of making money from illegal activities appear to be legal. Money laundering is a form of financial crime.
Terrorism financing is the process of providing money to terrorist organizations. Terrorism financing is a form of financial crime.
Theft, fraud, and embezzlement are all forms of financial crime. Ponzi schemes, pyramid schemes, and other scams are also forms of financial crime. Counterfeiting is another form of financial crime.
All of these activities are illegal and can lead to jail time and/or heavy fines. Money laundering, terrorism financing, and other financial crimes are often committed by organized crime groups.
Conclusion!
On the concluding note, it is clear that Money is an important concept in our economy. Money serves as a medium of exchange, which means it is used to buy goods and services. Money also serves as a standard of deferred payment, which means it can be used to make payments over time.
What do you think? Do you have any questions about money? Let us know in the comments! And be sure to check out our other articles on economics and finance.
