Functions of money

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Money has been like so many structures through ages: beads, wheels, shells, and also even the cows. All the structures have always had 3 things usual. Discover that what in these 8 minutes of an episode, on our economic lowdown podcast series. Also, you will get knowledge about how the commodity money is different from the representative’s money or how both can different from current fiat money.

Transcript

Commonly, people use money every day. We work hard to earn it and also easily spent it in any way but we do not think much about this. Money is accepted in various forms like cowry shells in Africa and the large stone wheel on the island of Yap, or wampum. The three functions of money they share:

  • First: It is a reserve of value, today if we earn 24 dollars so we can control on money before spending it because it will control the value tomorrow, next week and even next year. It is very efficient to store the value; it is not a good store of value.
  • Second: it is the unit of an account. If you buy a new computer, the price of this could be recited in terms of corn, bicycles and so on. Your computer might be the value you 100 to 1560 bushel of a corn current price, but you find helpful if a price set in terms of the money cause of a usual value across an economy.
  • Third: it’s a medium of exchange that means the money is accepted as a procedure of payment. When we go to the supermarket, we are fully positive that the cashier will receive our payment.

Representative money

It is verified or the tokens that can change for fundamental commodity. For example, instead of carrying the gold with you, you can keep the gold in a bank vault or might take a paper certificate that shows or was back to you in the vault. It represents that the certificate could take back your gold at any time. Also, this certificate is very easier to carry than your gold. Human trust on the certificate same as their gold. The representative money leads the way to use the economies today.

Fiat money

It’s money that doesn’t have inherent value or also doesn’t show an asset in the vault. This value comes from revealing a legal tender- acceptance a form of payment- by a govt. of establishing a country. In this, we are accepting the cost of money because govt. says the value and also the other’s value, it is sufficient to accept that as payment. Now, for example- we accept the U.S. dollar as an income because we are sure that we will be able to exchange the dollar for goods and services at a local market. Because, we know other people will accept that, we are agreeable to accept it. The U.S. currency is fiat money. That’s not a commodity with their own good cost or doesn’t show gold-or other most valuable commodities- that held in the vault. Because of their legal tender, its valued much and the people have some faith in its use as money.

Conclusion

Money is a very important function because that serves the medium of exchanges and that also becomes the means of payment. It normally accepts the commodity and in the procedure of the exchanges between the goods.

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