Money can be defined as an object that acts as a physical medium of exchange in transactions. Each country has its own currency and some currencies are shared by few countries (For example, European Countries use "EURO" as a medium of exchange in transactions).
The word "money" is originated from the temple of Hera, which is located in Rome. Money is very essential for human to survive the life and it is mandatory to purchase basic needful things such as clothes, food and shelter. Now-a-days, value is given to a person based on his/her wealth and status. Money system varies from one country to other. The word money is determined in three forms, which include,
- Commodity money
- Fiat money
- Fiduciary money
Money serves four essential functions:
Medium of exchange:
Money can be described as an intermediary object that commonly used in payment for buying goods and services. In addition, it provides more trade in economy. Medium of exchange must possess the following attributes:
- Value common assets
- Constant utility
- Low cost of preservation
- High market value
- Resistance to counterfeiting
Unit of Account:
'Unit of Account' is a resource which is defined as a standard numerical unit value that is assigned for goods and services to evaluate which is more valuable. Money has to be divided into smaller units such as fungible and specific weight in order to function it as a 'unit of account'.
Store of Value
‘Store of value’, act as a fundamental component for modern economic system, in which some medium is essential in order to exchange goods and services. Any physical asset, commodity is marked as a store of value.
Standard of deferred Payments
This component is not considered as a main function by all economists even though it is determined in some works. Money serves as a standard unit for defining future payments based on current expenses, which is nothing but (purchasing now and paying later).
In Barter system, goods and services are exchanged without involvement of money. Hence, monetary economy is the remarkable advancement over the barter system.