Have you ever wondered why money is one of the most popular commodities in the world today? If yes, then the reason for this popularity is that making payments for goods and services can only be done through a means of exchange and that’s money. As you go about your daily activities, it is one commodity that you cannot do without.
Most times, a lot of people think that when money is mentioned it involves only the paper money. However, money could be in the form of paper, precious metals, or online assets. Due to these different forms, the question is cash or gold better? will always come up. The simple answer is that they are similar in terms of value but in different forms. So, it all depends on how well you understand the forms, properties, and types of money.
Money is a generally accepted medium of exchange. It is a recognized and government-backed commodity accepted as payment for goods and services. Additionally, it is important for you to know that it has no inherent or intrinsic value. This implies that its value is dependent on what is placed on it. Without a generally accepted value, it is no different from a newspaper or any other type of paper. In simple terms, the common paper money you see today is valuable because of the value placed on it.
In this article, we will do a quick review of how to understand money, its various form, properties, and uses. Please keep reading as we explain more.
A Brief History of Money
For thousands of years, people have interacted and engaged in different forms of trade. At these times, the need to find an acceptable means of exchange became a priority. It all started with the trade-by-barter system. The trade by barter system involves the exchange of goods for goods. For instance, if you have clothes and you need food, you will have to find someone who has food and needs clothes. The system continued until the introduction of shekels, cowries, and then Gold and Silver. This period is popularly referred to as the age of metallic money. However, the currency had to be weighed on a scale to determine its value.
Later, coins were introduced. The use of coins ushered in another era in the evolution of currency as we have it today. The value of a coin was already inscribed on it, so with coins, there was no need to weigh. This also marked the beginning of inscribing value on an object which can act as a medium of exchange.
Paper money, which is common today started in China. Although it was not common at first, with time, it has grown to become a popular commodity. Different countries of the world today now have different currencies.
As stated earlier, money is an object with a value placed on it. This explains why some currencies are more valuable than others. Whether it is the dollar, Yuan, Euro, or Rupee, the values are different. The bottom line is that it is generally accepted by all, regardless of location, as a means of payment. If you need more information about the history of money, you can check here.
Forms of Money
There are four major forms, and they are:
Fiat currency generally refers to the common paper money. Fiat is used to describe a slip that its normal value is not equal to the value placed on it. In other words, when the value of a printed slip is less than the value placed on it, it is called Fiat currency.
To explain further, take a close look at the Dollar or Euro, without the value, it just remains an ordinary printed slip. But when the Dollar or Euro insignia is placed on it, it is worth increases. It can then be used as a representative of money and can be used by different people in their day-to-day operations.
This type of currency is used to describe an object that has inherent value. Apart from having inherent value, it can also serve as a value of money. Common examples of this type of currency are precious metals. Precious Metals like Gold, Silver, Platinum, and Palladium are regarded as valuable objects. This makes them a valid means of exchange anywhere across the world.
In times past, this was the most common currency, but it has been largely replaced by paper money. However, it remains a valuable asset in the global market.
As the name implies, bank money refers to the money you have in the bank. This is quite different from the cash you have at hand. When deposits and withdrawals are made, you in one way or another add or subtract from your bank money. So, the amount of funds you have in your bank account is your bank currency.
However, apart from the withdrawal and deposit of money into your account, using a credit or debit card can be classified as bank currency. These cards can be used to make payments at any time online and onsite. As a result, you do not need to move about with physical cash. Your credit or debit card can serve as a means of exchange.
Virtual or Digital Money
With recent innovations in technological advancement, virtual or digital money is becoming a leading trend. It is a type that is not tangible, that is, it cannot be touched. However, it can be used as a medium of exchange between two parties. An example of this type of currency is Cryptocurrency. This is a system of exchange controlled by a developer and accepted as means of payment among the members of a particular community.
Using an underlining mechanism, the developer programs the system in such a way that you can acquire virtual funds based on specific procedures. In some cases, this involves mining a coin, sharing a link, or making some payment. When this is done, funds can be added to your wallet where you can sell or buy at any time you wish. This system basically operates based on trust and may not be government approved. However, in recent times it is gaining massive popularity among different nations of the world. If you need more information about virtual currency, you can visit: https://www.investopedia.com/
Features Of Money
The following are the main features of Money:
- It is a generally accepted medium of exchange
- It is usually durable, that is, it can last for a lengthy period
- It is portable. It can be carried in bags, purses, or pockets.
- It is divisible. This makes it easy to break it down into smaller amounts when a purchase is made
- It is always uniform within a country. This explains why you need to change your currency if you travel out of your country.
- It is limited in supply. This way the government helps to curb inflation.
- It acts as a store of ascribed value even though it has no inherent value
Uses of Money
The main uses of currency include the following:
Unit of Account
When you go to the market, you will notice that every commodity has a price tag on it. This price tag helps you to give an account of a good or service. This also helps you to measure its worth of it. This way, currency acts as a unit of account.
Consequently, with the unit of accounts, you can make your budget, give an account, and plan your finances properly.
Store of Value
Money retains its value as a store for future purposes. For instance, when you have cash in your pocket, you intend to use it for something. Additionally, when you buy a commodity from the market, you pay the seller, and the seller also uses the cash for the desired purpose. In all aspects, it involves storing value for future use. Using an Individual Retirement Account (IRA) is also one way it can be used as a store of value.
We have discussed the meaning, forms, features, and uses of money in this article. It is pertinent to note that money is universal, however, it could have different colors, textures, values, and sizes. The appearance depends on your country. No matter the appearance, it is important to always respect your country’s currency. You can also decide to convert it into any form you want. All you need to do is follow the right procedures.