MONEY 101

MONEY 101

WHAT IS MONEY

• Money can be defined as anything that is generally accepted by the people of a society or territory for the payment of goods and services bought or for the payment of debts.

  Another very good, but brief definition of money is anything generally acceptable as a medium of exchange in a region or defined territory.

  
  

Characteristics of Money

Divisibility.

• Divisibility. Money is easily divisible. Money must be able to be easily divided into smaller units or denominations in order for one to be able to use to carry out even the smallest of transactions. If you cannot easily break down money into smaller units, then you do not have money.

PORTABILITY

Portability. Money must be portable. By being portable, money must be able to be easily carried by a person from one place to another. It should be easy and convenient to be carried around regardless of the distance the one carrying it is going to cover. Certainly, it must not be too bulky.

Acceptability

Acceptability. Money must be something that is generally accepted by all the people of a particular area, region, country or territory. In other words, money must be legal tender. When something is legal tender, then it is supported by the laws of the land. This means one can use it in payment and settlement of debt within a defined region or place. It therefore becomes a crime to refuse to accept it.

Scarcity.

Scarcity. Money must be scarce but not extremely scarce. Precious metals like gold and diamond are too scarce and can therefore not pass as money. Money should not be too scarce but limited in supply. If money is not scarce and supplied in abundance, then it becomes relatively worthless just like sand or stones, which can be found everywhere. Bottom line: money must be relatively scarce to get.

Stability.

Stability. Money must enjoy a relative stability over time in terms of its value. Anything being used as money should have its value being able to enjoy a reasonable stability over long periods of time else people are going to reject it. And when people begin rejecting it, then it cannot qualify as money.

Difficult to imitate

• Difficult to imitate. Any material that is used as money should be very difficult to imitate. If it is possible to imitate, then dishonest people are going to produce a lot of imitation of it and flood the entire region with it.

Standardized unit.

Standardized unit. Money should have a standardized unit. This means that the various units of money must be homogeneous.

NOTE

The above are the major characteristics of money. In order for something to qualify as good money, then it should have the above qualities.

NOTE

Anything that is generally acceptable as a means of exchange for goods and services bought is money. The most important requirement here is for that material (money) to be generally acceptable by all the people of a defined territory. Regardless of how precious or valuable a material is, if it is not generally acceptable by a people in a particular area, region, country or territory as a means of exchange, then it cannot be used as money.

FUNCTIONS OF MONEY

• Money is a medium of exchange. .

• Money is a measuring tool. (MEASURE OF VALUE)

• A standard for deferred payment. 

• Money makes it possible for us to save now for future use.( STORE OF VALUE)