<Last updated 13.04.2020>
Hi! If you are interested in Economics, I’ve prepared the below to help your understanding about money. You should take a look at this short article in which I discuss Trade and Money, of how people use Money as a Medium of Exchange.
In primitive economies, only a few products existed and trading/exchange was taken place instantly. This means that trading one good for another was done directly, face to face transactions. However, people were facing problems when doing economic activities without using a medium of exchange. These problems include: 1) People in need of a specific good had to find people providing it to do the exchange. This was hard to be done. 2) difficult to transport goods and resources for trading to take place, 3) calculating and dividing quantities of the goods was difficult. 4) difficult to identity the value of the goods and depreciation rate.
Money helped in making it easier for goods and services to flow through the economy. Money is whatever is generally acceptable as medium of exchange. Instead of one transaction to take place, two transactions are happening: a) Seller’s side: One sale, an exchange of money for the good, b) Buyer’s side: One buy, an exchange of money to buy another good.
Money is considered a Medium of Exchange, an Intermediate Good. I also serves as a Unit of Account: It represents a counting tool: The value of a unit of one good or service in terms of money is called price. It serves also as Means to Store Value: the amount that gives the possibility to transfer purchasing power from the present to the future. The money received today from the sale of one good, can be used to buy something else in the future. Is serves as a medium for contracting and repaying loans: An amount of money must be re-payed based on the agreement, a contract signed between two parties.
There are three forms so far of money:
> Commodity money: a physical good. Animals, shells, salt etc. were used as money by human beings as well as metals like gold and silver. This type of money has intrinsic value.
> Fiat money: Money that the law forces people to accept it as medium of exchange and as means to repay debt. Does not have intrinsic value. Involves coins and notes, demand deposits.
> A cryptocurrency (or crypto currency): It is something new in this era, a digital asset designed to work as a medium of exchange that uses strong cryptography to secure financial transactions, control the creation of additional units, and verify the transfer of assets.
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