Money

Published Jan 7, 2023

Definition of Money

Money is a medium of exchange that is used to facilitate transactions between two or more parties. That means it is a form of currency that can be used to purchase goods and services. It is typically issued by a government or other authority and is accepted as a form of payment by most people.

There are different types of money (e.g., commodity, fiat, fiduciary, and commercial bank money). All of which perform the three functions of money (i.e., medium of exchange, store of value, and unit of account).

Example

To give an example of money, let’s look at the US Dollar. The US Dollar is the official currency of the United States and is accepted as a form of payment in most countries around the world. It is issued by the US Federal Reserve (FED) and is available in paper and coin or digital form. People can use US Dollars to purchase goods and services, pay taxes, and make investments (i.e., medium of exchange). In addition to that, they can use it to save up for retirement (i.e., store of value) or to compare the prices of two or more goods or services (i.e., unit of account).

Why Money Matters

Money is a fundamental part of any economy. It is the primary medium of exchange and is used to facilitate virtually all transactions that take place anywhere around the world. Without money, it would be much more difficult to buy and sell goods and services, or participate in the economy in general. The fact that it also serves as a store of value allows people to save for the future and protect themselves against poverty. Finally, it allows people to measure the value of goods and services in a simple and yet consistent way no matter where they are.