What is Money?

 Discussions around money and what exactly it represents have arisen numerous times since the concept came into existence. To this day, the definition of money is still the subject of much contention. There is a multiplicity of views as to what constitutes money but they all more or less share some major common themes.

Money is a Medium of Exchange

This definition of money is perhaps what comes to most peoples' minds when they think of money. The function of money as a medium of exchange simply means it can be used to trade goods and services. In a barter system parties who wish to trade must provide items that either party is willing to accept in exchange for what they have to trade. This is called a double coincidence of wants. It can be problematic especially when goods or services are particularly rare or expensive. Money eliminates this problem by acting as a common denominator for which largely all goods and services can be exchanged.

Money is a Unit of Account

As a unit of account, money can be used to measure the value of goods and services in an economy. Whereas in an economy that does not use money you'd have to price every good and/or service in terms of every other good and/or service, in an economy that does make use of money you'd only need one reference of value for all goods and services i.e money.

Money as a Store of value

When something is a store of value, it acts as a repository of purchasing power over time. Because money can be held and exchanged for goods and services at a later date it functions as a store of value. However, other assets such as Gold or Silver perform better than money as stores of value as they normally offer better rates of interest and are not prone to problems of hyperinflation. 

These three facets largely represent the criteria for something be classified as money. Something must be a medium of exchange, a unit of account and a store of value in order to qualify as money.