The Nature of Money
Uploaded by
ScribdTranslationsThe Nature of Money
Uploaded by
ScribdTranslationsTHE NATURE OF MONEY
In general, money is a set of assets in an economy that people
they are regularly willing to use as a means of payment to buy and sell goods and
services.
Throughout history, different objects have been used as money. Metal pieces
Like gold and silver were widely used because they preserve well and are easy.
to transport them.
FUNCTIONS OF MONEY
Money serves three functions in an economy:
Medium of exchange: since it is generally accepted by society to settle purchases and
sale of goods and services.
Unit of account: because it allows setting prices and documenting debts.
Value deposit: since it allows the transfer of the ability to purchase goods and services to the
long of time.
CHARACTERISTICS OF MONEY AS A MEANS OF PAYMENT
For money to fulfill the function of a medium of exchange, it must be:
Durable: it must be able to circulate in the economy in an acceptable state.
reasonable time.
Transportable: forks must be able to easily transport money with a
substantial value.
Divisible: money must be able to be subdivided into small parts easily without that
lose its value, so that its value can approximate that of any commodity.
Homogeneous: any unit of money must have a value exactly equal to that of
the others.
Of controlled issuance: so that it maintains its value and does not halt the economy
because the money supply is insufficient. This implies that it is necessary to avoid its
falsification.
The elastic nature of bank money as a debt that is created and destroyed is related
with economic cycles.
Money is a fundamental social institution that facilitates coordination and cooperation.
Each individual uses money because they know that others also use it to pay and collect.
in their exchanges.
Good money is the best invariant of value possible in an economy that allows costs of
minimum production and use (storage, transport, transaction). Ideally its value or
Purchasing power is invariant or stable in the face of changes in person, time, place, quantity and
role of the agent; it is the most liquid asset, which is bought or sold quickly and in large amounts
quantities without altering only their price or purchasing power; it uses, demands and offers everything the
world all the time (its overall supply and demand are broad, deep, and constant, with
possible variations according to changes in economic activity.