Characteristics of Money to Function Effectively

Characteristics of Money to Function Effectively Explain the characteristics required by money if it is to carry out its functions effectively. What is money? Money is primarily a current medium exchange, for a person to buy goods and services from other person in the form of coins and banknotes (Freeman, 2012). It is critical to have a clear definition between money and wealth. In general, people may tend to use the term â€Å"money† as a synonym for â€Å"wealth†, such as Warren Buffet has a lot of money. However, economists clarify that these two terms are not in fact synonymous. In the side of economics, â€Å"money† is specifically used to refer to the currency, but not an individual’s wealth or assets. Yet, technically anything can be served as money as long as it possesses the following four main functions (Beggs, 2014). First of all, it must have the primarily function of serving as a medium of exchange. People need an item that is able to act as money to undergo the activities of buying and sel ling goods and services. In other words, an item that considered as money must be widely being accepted as payments for goods and services (Beggs, 2014). Money has made the transactions easier as everyone is willing to trade money for goods and goods for money. However without money, the transactions must be conducted through the barter system where exchange can only happen if there is double coincidence of wants. This system will cause inconvenience to the people as they cannot buy what they want or need or the seller may hard to sell his goods unless double coincidence of wants happens. Hence, we can conclude that money has eliminated the inconvenience which was faced in barter transactions by eliminating the double coincidence when purchasing or selling goods and services (UPADHYAYA, 2012). People can buy what they need from the seller and inversely seller can sell all the goods and services to people who need. Besides that, money is able to create efficiency as it eliminates unc ertainty regarding what is going to be accepted as payment by various businesses. With a generally accepted medium of exchange, trades are easier, more efficient, and resources can spend more time doing production (Money Functions, 2000-2014). Besides that, an item must work as unit of value or standard value in order to consider as money. Money is being used as the common benchmark to designate the prices of goods throughout the economy (Money Functions, 2000-2014). Money provides and measures various goods and services with different value that produced in the economy, in the terms of monetary unit. Without this function, money is extremely hard to identify since there is no value in between, and also hard to make a decision on how much volume of goods and services should be given in exchange of a given quantity of a commodity in a barter economy (UPADHYAYA, 2012). However, money has solved this problem by letting people to know the exact value or price of a good. It enables both the suppliers and buyers to make wise decisions about how much to supply for the goods and how much to purchase in exchange (Function of Money, 2013).