Money

• Money


  Anything that is generally and legally accepted as payment for goods and services
• Instruments of money


  • Notes and coins
  • Credit cards
  • Debit cards
  • Cheques
• Functions of Money


  • Medium of exchange
  • Unit of account
  • Store of Value
  • Standard of Deferred Payment
• Medium of exchange


  The means by which goods and services move from the seller to the buyer
• Unit of account


  Money is used to value goods, services, assets and liabilities. This helps in determining the worth of an item and aids in making comparisons
• Store of Value


  Money must maintain its purchasing power in the future. This can be achieved when people save. Saving enables the use of money in the future and wealth is accumulated as current spending on goods and services is deferred. $1 saved today can be used to buy goods and services in the future, however, inflation has the tendency to erode money as a store of value
• Standard of Deferred Payment


  The idea here is that consumers can buy goods and services now but pay for them later. Loans and goods purchased on credit or hire purchase for example are usually accompanied by loan/hire purchase agreements. (Money is used to repay loans)
• Characteristics/Feature of Money


  • Scarcity
  • Acceptability
  • Portability
  • Durability
  • Divisibility
  • Uniformity/Homogeneity
  • Liquidity
  • Non-counterfeitable
• Scarcity


  This makes money desirable to hold
• Acceptability


  Money is accepted by buyers and sellers to exchange/trade goods and services
• Portability


  Money must be convenient to carry around
• Durability


  The material with which money is made must be able to last through numerous transactions so that money can maintain its worth
• Divisibility


  It must be possible to break down money into smaller units (i.e. to make change)
• Uniformity/Homogeneity


  Each unit of money must be identical to all other units. All $100 notes must look the same, otherwise, it will affect confidence in the currency
• Liquidity


  Money must be easily convertible into cash
• Non-counterfeitable


  It must be extremely difficult or impossible to duplicate money
• Types of money


  • Token money
  • Commodity money
  • Fiat money
• Token money


  Traders and bankers once issued counters or tokens as a record of monies deposited by the public and these could be used to acquire commodities
• Commodity money


  Has value both as a commodity and as money and can be used as a medium of exchange. e.g. gold, silver, copper, other precious metals
• Fiat money


  This is money declared as legal tender by government