What Are the Main Characteristics of Money?
The main characteristics of money are durability, divisibility, portability, acceptability, limited supply and uniformity. Money serves as a store of value, a unit of account and as a medium of exchange.
Durability of money means that it can be replaced when it is worn out. The Federal Reserve regulates the supply of money in order to retain its value. Money and wealth are not synonymous because money refers to currency, which may not be an individual’s sole source of assets or wealth.
Money takes various forms, such as coins, banknotes and the money that is held in savings and checking accounts. Representative money is a token or certificate that can be changed for an existing commodity, such as gold stored in a bank. Modern money takes the form of fiat money, which is a legal tender that is acceptable by everyone within an economy. However, anything can act as money as long as it serves its three main functions.
Early forms of money were silver and gold coins. Money was introduced in order to make economic transactions efficient and simple. The money system is unlike the barter trade system, which is inefficient because it requires people to have a double coincident of wants. Money is a consistent unit of account because bank balances and prices are reported in terms of money in order to avoid confusion and promote efficiency.