The Concept of Money

Introduction

Money simply refers to any asset which is generally accepted by people of a particular community (society) for the payment of goods and services and for the settlement of debts. However, money is known as a legal tender in the society where it is being used because by law everybody is compelled to accept it in the payment of goods and services. Examples of money include the Franc for the french co-operation in africa, the US dollars, Euro, Yen, Pound Sterling, Cedi in Ghana etc.

The Barter System of Trade

Definition

Trade by barter can be defined as a form of trading where goods and services are exchanged for other goods and services without the use of money.

Disadvantages or Drawbacks of Trade by barter

The trade by barter had many limitations which included the following:

1. Problem of double coincidence of wants: This refers to a situation whereby the exchange of goods to take place, you need to fine someone who has what you want and wants what you have. This was a very difficult task

2. Bulkiness of some Goods: Some goods by nature were very bulky and heavy thus making it difficult to carry it along.

3. Wastage of time and Efforts: The barter systeme of trade also leads to waste of time and alot of energy because one has to search for someone to exchange goods whoch was not easy

4. Problem of storage: Barter system unlike money doesn’t favours the storage of wealth. It is very difficult to store wealth especially where perishable goods are involved such as tomatoes, bananas, yams etc

5. Discourages lending and borrowning: Lending and borrowning under trade by barter is pratically impossible as there is no unit standard of measurement.

TYPES OR FORMES OF MONEY

Money exist in different formes and include the following

a). Precious metals: Some metals like silver and gold were used as the early form of money. These objects were durable, portable, divisible as required qualitoes of money

b). Commodity Money: Thet Commodity money have an intrinsic value and was commonly used by people as a means of exchange. For example cattle, shells, salt etc

c). Paper money or bank notes: Bank notes or paper money originated from the receipts issued by the goldsmiths to those who deposited precious metals with them for safe keeping. Bank notes can be defined as money printed on papers by the central bank of the country. These banknotes cab either be known as Convertible Bank notes or Incorvertible bank notes

d). Coins: These are shaped pieces of metals bearing an authoritative imprint of the issuing authority which has the power to certify their money value

CHARACTERISTICS OR FEATURES OF GOOD MONEY

I. Generally accepted

II. Divisibility

III. Homogeneity

IV. Portability

V. Stability in value

VI. Relatively Scarce

VII. Malleability.

FUNCTIONS OF MONEY

i. Medium of exchange: This is the most important function of money. By this, people are able to buy and sell goods and services in the society

ii. Unit of account: This function makes it possible for individuals and companies to keep accounting records of all their various transactions

iii. Store of value: Money is a very good store of value because wealth can be stored for the future use in terms of money.

iv. Measure of value: Money can be used to compare and measure the value of goods and services