Welcome to our blog. In today’s article, we will be talking about money. Specifically, we will be talking about the forms of money we have.
Money has different definitions for different people. Also, money serves different purposes and lastly, it has its own importance, advantages, and disadvantages.
The same is applicable to the different forms of money we have, they have their own advantages and disadvantages.
However, in the course of this article, we will be talking about money, the different types of money we have, the different forms of money we have, the uses of money, its advantages, its disadvantages and its uses
What is Money?
Money is a medium of exchange that is generally accepted in exchange for goods, services, or repayment of debts.
It serves as a unit of account, a store of value, and a standard of deferred payment. Money has various forms, like physical currency (like coins and banknotes) and digital representations (such as electronic funds in bank accounts).
It facilitates economic activities by simplifying trade and making it more efficient.
Furthermore, let’s take a look at the features of money
- It serves as a Medium of Exchange.
- A Unit of Account
- A Store of Value
- Also a Standard of Deferred Payment
- Its Portability
- Durability
- Divisibility
- Uniformity
- Acceptability
However having seen the feature we can find in all money that is in hard copy, let’s talk about the importance of money.
You have there is no specific country as all countries and regions use money.
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Importance of money
The following are the importance of money
- It Facilitates Trade
- It is the basics of Economic Growth/development
- Standard of Value by providing a consistent measure of value for pricing and comparison.
- It serves as a Store of Wealth
- Money can be quickly converted into goods or other assets, providing liquidity.
- It Reduced the Barter System
- A medium of Global Transaction
- A tool of Investment
- Promote Job Creation
- Provides Financial Stability
- Form of Government Revenue
- Provides capital for entrepreneurs
- Supports investment in education and healthcare systems
Mediums of Money
Money can be accessed in different ways and forms which we will list out today. Different persons of different classes access this money in different forms, which are but not limited to
- Cash
- Digital Money
- Cheques
- Debit Cards
- Credit Cards
- Mobile Wallets
- Cryptocurrencies
- Bank Transfers
- Traveller’s Checks
- Money Orders.
- Precious Metals e.g. gold and silver
- Promissory Notes
Uses of the various mediums of money
Cash
Physical currency is used for buying groceries paying for services or for small, in-person purchases (immediate transactions).
Digital Money
Money in digital form is used for online shopping, bill payments, and electronic fund transfers. It is convenient and secure (online payments and transfers electronically.)
Cheques
Cheques are used for making payments when electronic or cash transactions are not practical. E.g. common for bill payments, rent, and business transactions (may require time for processing and clearing).
Debit Cards
Debit cards are used for in-store purchases to online shopping linked directly to a bank account (immediate access to funds in a bank account.)
Credit Cards
Credit cards allow individuals to make purchases on credit, for larger expenses or in emergencies (quick and contactless transactions)
Mobile Payments
Mobile payment apps are used for in-store and online shopping, as well as peer-to-peer payments.
Cryptocurrencies
Cryptocurrencies are used for the sake of decentralization, security, and potential for investment.
Traveler’s Checks
These are used by travelers as a secure way to carry money, they can be replaced if lost or stolen. Can be cashed at banks and may be accepted at many locations worldwide.
Money Orders
Money orders are used for smaller transactions where a personal check is not accepted or for sending funds securely by mail (require processing time).
Precious Metals
Less common today, precious metals like gold and silver have been historically used as a store of value and a hedge against inflation and economic instability.
Promissory Notes
These are used in lending and borrowing scenarios, such as loans, mortgages, and promissory notes for business transactions (represent a future payment and are not immediately spendable.).
Forms of money that you need to Know
The forms of money include
- Commodity money
- Coins
- Fiat money
- Representative money
- Bank deposit
Commodity Money
This type of money is different from representative money. It is money that gets its value from the commodity it is made from.
It consists of an object that has intrinsic value like gold, silver, shells, alcohol, candy, nails, cocoa beans, barely etc.
Coins
This is a form of money that has intrinsic value. They include precious metals, currency and paper notes in different shapes and sizes.
Fiat money
This is categorized under paper money. It is believed to have more face value than its real value. This form of money cannot be exchanged for standard money.
Representative Money
These are paper notes that can be changed to coins or precious metals at a fixed rate. This type of money was usually used in India in 1927
Bank Deposit
This is money that can be withdrawn from banks either through Cheques or debit cards. This can be derived from loan extensions from individuals or firms
Conclusion
This article has a concrete explanation of money, its types, importance, mediums, and forms. Money is a medium of exchange. It can come in different forms and can be used through various mediums.
For questions or answers or further explanation, you can drop a comment in the comment section below and we will get to answer all your questions
Frequently Asked Questions
What is the primary difference between cash and digital money?
Cash is physical currency in the form of coins and banknotes, while digital money is electronically represented and stored in bank accounts or digital wallets.
How do cheques work as a medium of money?
Checks are written orders from an account holder to their bank to pay a specific amount to a person or entity. The recipient can deposit or cash the check.
What is the difference between debit and credit cards?
Debit cards access funds directly from a linked bank account, while credit cards provide a line of credit that can be used for purchases, to be paid back later.