• Anything that serves as a medium of exchange, a unit of account, and a store of value

What is Money?

STAGES IN THE EVOLUTION OF MONEY

1. COMMODITY MONEYBarter (Anything of Value)

2. METALIC MONEYCoins

3. PAPER MONEY4. CREDIT MONEY

Checks, Drafts, P.O., I.O.U.5. ELECTRONIC MONEY

credit cards, e-money, electronic cash, electronic currency, digital money, digital cash or digital currency

The Three Uses of Money

• Money as a Medium of Exchange– Anything that is used

to determine value during the exchange of goods and services

– Alternative: barter; direct exchange of one set of goods or services for another

The Three Uses of Money

• Money as a Unit of Account– Provides a means for comparing the values of

goods and services

$30.00$40.00

The Three Uses of Money

• Money as a Store of Value– This means money keeps its value if you

decide to hold on to – or store- it instead of spending it

The Six Characteristics of Money

• Durability– Money must withstand the physical wear and

tear that comes with use– If it can be easily destroyed it cannot be

trusted

The Six Characteristics of Money

• Portability– Must be easy to carry, very portable, and

small and light

The Six Characteristics of Money

• Divisibility– Must be able to be divided into smaller

denominations

The Six Characteristics of Money

• Uniformity– Any two units of money must be uniform: the

same in terms of what they will buy

The Six Characteristics of Money

• Limited Supply– The ability to manage your money to keep just

the right amount of money available

The Six Characteristics of Money

• Acceptability– Everyone in an economy must be able to

exchange the objects that serve as money for goods and services

Source of Money’s Value

• Commodity Market– Consists of objects that have a value in

themselves and that are also used • Precious stones, salt

Source of Money’s Value

• Representative Money– Makes use of objects that have value

because the holder can exchange them for something else of value

• An IOU, Silver Certificate

Source of Money’s Value

• Fiat Money– “Legal tender” that has value because the

government has decreed that is an acceptable means to pay debts.

– Valuable due to its limited availability