Money - What is it? characteristics, types, functions, importance, and more

Money

An asset that acts as a tool in carrying out commercial operations.

What is money?

Money is an asset that acts as a tool in carrying out commercial operations for the acquisition of goods or services; in this way, money constitutes any asset capable of acting as a means of payment.

This tool is susceptible to evolution since previously it used to be traded with gold and silver. Currently, the most used payment methods are physical tickets and electronic money, because they facilitate commercial operations.

The money expressed in physical bills is established by governments, which certify its legality. Generally, each country has its own local currency, with a representative value that supports the various world economies.

Characteristics of money

The main characteristics of money are the following:

• Provides a basis for setting prices.
• Facilitates commercial operations.
• Depending on the type of asset, it can be durable and easy to transport, such as banknotes.
• Its value may vary according to the demand and supply in the market.
• The type of asset may vary depending on the agreed payment option.

functions of money

The main functions of money are as follows:

• Provide a basis for establishing the price of a good or service.
• Function as a means of payment or collection in commercial operations.
• Be a store of value, as it can retain purchasing power over time.
• Facilitate commercial operations.
• Intervene in macro and microeconomic dynamics.

types of money

The different types of money are as follows:

• Money with its own value: corresponds to those goods that by themselves have their own value, for example, gold or silver.
• Money without intrinsic value: corresponds to those types of assets that by themselves do not have their own value, but whose value is established by society and governments, for example, banknotes, coins, or electronic money. This type of money has in turn subdivisions:
  • Electronic money: a mercantile instrument that is represented in electronic support, for example in bank accounts. This type of money has the same function as physical bills.
  • Banknotes or coins: mercantile instrument represented in a document of paper money or metallic pieces. It is the legal means of payment established by governments. Its value may vary depending on the issuing government. The most widely used currency around the world today is the US dollar (USD).

importance of money

The importance of money lies in its value and what it represents in the development of the economy, being a means of payment in the exchange of a good or service.

The economic dynamics of societies are mainly mobilized by the assets that circulate in them, therefore, assets with purchasing power are essential for the acquisition of basic goods or services for the development of the human being.

A basic basket of food or basic necessities are just some examples of goods that, without the presence of money, would be almost impossible to acquire in modern societies.

Likewise, the fluctuations of purchasing assets have a direct impact on the behavior of the micro and macro economy, so money plays a fundamental role in the economic management of government policies.

 

Thank You