Money and Its Characteristics

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 Money

1. Medium of Exchange

Money facilitates transactions by eliminating the inefficiencies of barter systems. It is universally accepted in exchange for goods and services.

2. 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.

3. Store of Value

Money retains value over time, allowing individuals to save and retrieve wealth. To be effective, money must maintain its purchasing power.

4. Standard of Deferred Payment

Money is accepted for future payments, enabling borrowing and lending activities. It provides a reliable method for settling debts.

5. Liquidity

Money is the most liquid asset, meaning it can be easily converted into other goods and services without losing value.

6. Fungibility

Each unit of money is interchangeable with another of the same denomination, ensuring consistency in transactions.

Money and Its Characteristics