Money Essay

What is money? We define money as valuable paper that exchange with goods and services. Before the evolution of money, our ancestor used barter system to exchange their goods and services. Barter refers to the direct exchange of goods and services for other goods and services. For example, if you have cucumbers but you want chickens, so you need find someone who has chickens and willing exchange with your cucumbers. However, barter system does not provide the transferability and divisibility that makes trading efficient (Madhavan, 2010).

Money is any commodity that is generally acceptable as a payment for goods and services. Therefore, economist defined money as medium of exchange in the forms of coins and banknotes (Anderton, 2000).

Money is an important instrument in any monetary economy in that it performs four specific functions, which can overcome the problems of barter trade (Anderton, 2000) . One of the function is medium of exchange. Money as a medium of exchange removes the inefficiency of the barter system. The introduction of the money as a medium of exchange in the economy eliminated the need for a double coincidence of wants because generally people could now accept money in exchange for goods and services (HARCOURT, 2013).

Second is unit of account, money as a unit of value of account serves as a unit of measurement in terms of which the values of all goods and services exchanged in the economy are measured and expressed. In others words, society finds it convenient to use monetary units as a yardstick for measuring goods and services. The Ringgit is used to measure the value of goods and services in Malaysia. Money as a measure of value or unit of account provides the basis for keeping accounts, and calculating p...

... middle of paper ...

... can’t hold its value over time and also can’t spend for future (unknown, 2009).

Limited means relatively hard to obtain, if we still using shell or stone as money, prices of goods are likely to be very high because shell and stone are easier to obtain. However, it doesn’t relevant to all the function of money (unknown, 2009).

Last is acceptable to all, it is inconvenient if money only can buy some goods but not others. Nowadays everywhere also accept money as exchange goods and services because we all looking for money, not like barter trade, exchange can only happen if there is a double coincidence of wants. It is relevant to unit of account and store of value. If we can’t use money to measure the value of goods and services, we won’t accept the money as our wealth. Besides that, if the value of money can’t hold over time, what for we accept it (unknown, 2009).