Marsila
31st July 2011, 19:45
Such there is a lot of discussion on this and alternatives to it, this very simple article and in simple terms tells what makes a "thing" money, and why gold and silver seem to feature so much in such discussions
http://www.liftminds.com/lesson/102/Money_and_banking_attributes_of_money
All money (no matter what type) performs certain functions. The various attributes and functions of money are as follows:
Acceptability: The most important attribute of money is that it is readily acceptable in all types of transactions. So, money should be widely accepted by everyone in that particular society. you should be able to buy something with it, and you should be willing to accept it if you sell something. due to this attribute, money is treated as the most liquid of all Assets. Going back to the introduction, beanie babies cannot act as money in the same way as the us dollar. While certain groups may accept beanie babies as a currency, these objects are not widely accepted by the Entire society and, thus, are not money.
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Durability: it is also necessary that money does not wear out quickly. What would happen if we decided that we would use cookies as our money? well, after a couple of weeks, the cookies may start to crumble and mold. after a short while, they may have completely disintegrated. obviously, cookies would not be a good form of money because they're not very durable. as you know, money in modern society comes in three main forms: paper, coins, and intangible deposits. It suffers little physical damage. paper money and coins last a long time and, even if they are damaged, new versions can be easily printed. In the case of bank deposits, money is an electronic medium and, hence, cannot suffer physical damage.
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Homogeneity: Modern money is homogeneous and uniform in value and form. For example, if you have two dollar bills, they should be worth the same amount. although this may seem very obvious to you, you need to remember that previous forms of money were not always uniform.
to illustrate the point, let's assume a country's money is stocked in the form of gold coins. These gold coins do not contain equal amounts of metal (for example, some of them have 1 gram of gold and the others have 2 grams of gold). what would happen in such a situation? People would figure out that some of the coins were worth more than others. if they were smart, they would simply take the 2 gram coins and melt them into two 1 gram coins. By doing this, they would have doubled some of their money. Thus, since money was not uniform in value or form, part of the money supply could multiply without the consent or approval of the government.
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Divisibility: money should be able to be divided into smaller units. By using the current system of dollars and coins, we are able to come up with every dollar and cent combination possible! a major disadvantage of commodity money (such as apples or cattle) is that they cannot be divided into smaller units. How would you like to exchange an entire cow for a bag of chips at the supermarket?
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Portability: money should be easy to carry and exchange from one person to another. For example, it is easy to carry a twenty dollar bill or even a hundred dollar bill in our wallet or pocket. in our modern society, we can even transmit a bank deposit electronically from one place to another. on the other hand, commodity money (such as cattle or vegetables) cannot be easily transported from one place to another.
http://www.liftminds.com/lesson/102/Money_and_banking_attributes_of_money
All money (no matter what type) performs certain functions. The various attributes and functions of money are as follows:
Acceptability: The most important attribute of money is that it is readily acceptable in all types of transactions. So, money should be widely accepted by everyone in that particular society. you should be able to buy something with it, and you should be willing to accept it if you sell something. due to this attribute, money is treated as the most liquid of all Assets. Going back to the introduction, beanie babies cannot act as money in the same way as the us dollar. While certain groups may accept beanie babies as a currency, these objects are not widely accepted by the Entire society and, thus, are not money.
</li>
Durability: it is also necessary that money does not wear out quickly. What would happen if we decided that we would use cookies as our money? well, after a couple of weeks, the cookies may start to crumble and mold. after a short while, they may have completely disintegrated. obviously, cookies would not be a good form of money because they're not very durable. as you know, money in modern society comes in three main forms: paper, coins, and intangible deposits. It suffers little physical damage. paper money and coins last a long time and, even if they are damaged, new versions can be easily printed. In the case of bank deposits, money is an electronic medium and, hence, cannot suffer physical damage.
</li>
Homogeneity: Modern money is homogeneous and uniform in value and form. For example, if you have two dollar bills, they should be worth the same amount. although this may seem very obvious to you, you need to remember that previous forms of money were not always uniform.
to illustrate the point, let's assume a country's money is stocked in the form of gold coins. These gold coins do not contain equal amounts of metal (for example, some of them have 1 gram of gold and the others have 2 grams of gold). what would happen in such a situation? People would figure out that some of the coins were worth more than others. if they were smart, they would simply take the 2 gram coins and melt them into two 1 gram coins. By doing this, they would have doubled some of their money. Thus, since money was not uniform in value or form, part of the money supply could multiply without the consent or approval of the government.
</li>
Divisibility: money should be able to be divided into smaller units. By using the current system of dollars and coins, we are able to come up with every dollar and cent combination possible! a major disadvantage of commodity money (such as apples or cattle) is that they cannot be divided into smaller units. How would you like to exchange an entire cow for a bag of chips at the supermarket?
</li>
Portability: money should be easy to carry and exchange from one person to another. For example, it is easy to carry a twenty dollar bill or even a hundred dollar bill in our wallet or pocket. in our modern society, we can even transmit a bank deposit electronically from one place to another. on the other hand, commodity money (such as cattle or vegetables) cannot be easily transported from one place to another.