Why do we use money
1. Term / characterization: Money or means of payment are assets that are accepted by the creditor to cover liabilities due to market convention or legal obligation.
The Transition from the natural exchange to the money economy began with the initially local custom of splitting the previously simultaneous exchange of two services into separate processes of buying and selling by agreeing on an intermediate exchange item. Initially storable goods (commodity money, e.g. furs, oils, jewelry) served as the medium. With the development of trade and the division of labor, these were replaced by financial assets (coins, private and state banknotes as well as bank money in the form of daily sight deposits at commercial banks).
In the modern monetary constitution money is created by the central bank (central bank money) or the banking system (deposit money). The use of legal tender offers the debtor the guarantee not to be in default.
2. Basic functions: a) Arithmetic mean function: By equating a monetary unit with the face value of one, the possible number of Natural exchange rates, which for n types of goods correspond to almost half the square of n, reduced to n money prices. The function of money as a means of calculating exchange transactions could, however, also be perceived by an abstract measure. This function is therefore not constitutive for the essence of money
b) Store of value function: The same applies to the function of the store of value. Holding money allows purchasing power to be transported interregionally and intertemporally. However, this function is also fulfilled by other assets, and often better because as the value of money falls, only the nominal value is retained, but not the real value, which is decisive for the quality of the store of value.
c) Medium of exchange function: Constitutive for the essence of money is therefore only the property or function as a transaction-dominating medium of exchange. This property gives money the highest degree of liquidity of one; this means that money is accepted without a discount at face value. As a transaction-dominating medium of exchange, money enables market participants to save transaction costs as well as information costs about market opportunities. As a medium of exchange, money with this cost saving expands the range of real production possibilities of the economy given the given factor equipment.
3. Macroeconomic monetary aggregates:Money supply.
See also monetary theory, virtual currency; Economic sociology.
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