Here, we will be taking a closer look at the definition of Money, Types and what makes money what it is in this day and age.
Qualities of Good Money
From the functions as a means of exchange, it is easy to identify the desirable qualities of a good money.
First, in terms of payment, it must command general acceptability to be able to fulfill efficiently those functions outlined earlier.
Second, such a commodity has to be durable. It should be able to withstand the wear and tear of being passed around in exchange.
It must be fairly resistant to heat and not easily destructible by water.
Again the commodity to serve as money should be easily divisible into fractional values to facilitate purchases in larger and smaller amounts.
Metals such as gold and silver meet these requirements but cattle or jewels do not.
Any money commodity or standard money should be portable, easily recognizable and standardized with a fairly stable value when currency or coins become defected.
A commodity without a stable value can conceivably serve as a medium of exchange but it will not efficiently fulfill the other functions of money.
If money varies in value through time, it will impose a burden on some people and provide others with windfall gains which can destabilize the entire economic system due to excessive speculation.
It is for this reason that most nation undertake the onerous task of protecting the value of money through monetary policies.
Definition of Money
Should we say money is as old as man… off course this is an over statement although It has been employed in economic transactions for centuries.
Yet, its concept in terms of definition has remained very controversial and somewhat elusive.
According to the economist, various definition of money depending on the school of thought or on the perspective adopted.
Some people define money in terms of its role – for instance it serves as a medium of exchange, a unit of account, a store of value and a standard for deferred payment for paying off debt.
Others also define it from its physical properties – either as coin, paper currency or chequing deposits.
This is somewhat that popular notion with many citizens. Money may however exist in many other forms as in Barter System.
Let us attempt a definition by examining the characteristics of money.
One description sees money as “the complex of those objects which in a given economic system have as their normal purpose the facilitation of economic interaction (e.g transfer of value) between economic units or individuals”
Another View also defines money as:
“property with which the owner can pay off a definite amount of debt with certainty and without delay”
Then, another definition of money sees it as:
“Anything that has a fixity of price (in terms of a unit of measurement) and general acceptability in payment transaction (for goods and services or the discharge of debt)
Central to these definitions is the fact that money is what we use to pay for goods and services and to settle debts.
Note that in most economic transactions, a debt is created and later extinguished.
Business seldom make immediate payments for goods and services.
In the same way some individuals are billed for the purchases at the end of specified periods.
These are occasions of debt which are eventually resolved.
Again we note that money can be anything or object be it leaves, paper, metal or what have you.
In that light, we can sum up the different definitions by defining money as anything with an unchanging price in terms of a unit of account which is generally acceptable within a political jurisdiction for the settlement of debt or for payment for goods and services rendered.
Unchanging price implies rigidity in value, while unit of account implies that relatively it cannot be discounted.
It has to be generally acceptable on its face value within the sovereign territory that so defines it, hence political jurisdiction means that elements of coercion must be present.
In fact this last point makes it absurd when we find our fellow citizen rejecting the legal tender unnecessary even in the face of law enforcement agents.
Determinations of Money
In the bid to determine what actually constitutes money we may return to consider the major characteristics of money which we discussed previously.
One of the major characteristics of money includes general acceptability, durability, divisibility, portability, homogeneity and scarcity.
These are various determinants of what a country decides to adopt as money.
These determinants depends on:
- The stage of economic development of the country
- The availability of the various things that may be used as money.
- The people’s taste is another factor
- The nature of religious practices among the people.
- The stage of development of the financial institutions and
- The honesty and strength of the government. These will go a long way in determining the money of a nation.
Kinds of Money
Two principal kinds of money to us today i.e
- The hand to hand currency which we see, possess and use in our everyday transactions
- The demand of chequing deposits in our banks. However there are other principal variants of these two forms which we will examine. These include – full bodied, representative full-bodied, credit money and quasi-money.