Money and Its Characteristics
Introduction
Money represents the value within a transaction. It is a broader concept than currency and includes any item or verifiable record generally accepted as payment for goods and services and repayment of debts. Money serves as a medium of exchange, a unit of account, a store of value, and a standard of deferred payment.
Characteristics of Currency
- Medium of Exchange Money facilitates transactions by eliminating the inefficiencies of barter systems. It is universally accepted in exchange for goods and services.
- Unit of Account Money provides a consistent measure for valuing goods and services. It allows for the standardization of prices and comparison of value across different items.
- Store of Value: Effective currency can be divided into smaller units to allow for precise transactions of varying amounts. This characteristic supports flexible pricing and exchange.
- Standard of Deferred Payment: Money is accepted for future payments, enabling borrowing and lending activities. It provides a reliable method for settling debts.
- Liquidity: Money is the most liquid asset, meaning it can be easily converted into other goods and services without losing value.
- Fungibility: Each unit of money is interchangeable with another of the same denomination, ensuring consistency in transactions.
