How do we define Money?
We all know what money is but how might we define it? The generally accepted academic definition of money needs to fulfill three functions: A medium of exchange, a Store of value, and a unit of account.
Medium of exchange means it is a payment mechanism - you can use it to pay someone for something to extinunish a debt or financial obligation. To be good medium of exchange, it doesn't need to be universally accepted, but it should be widely accepted in the particular context for which it is being used.
Store of value means that in the near term your money will be worth the same as it is today. To be good store value, you need to be reasonably confident that your money will buy you more or less the same amount of goods and services tomorrow, next month or next year.
Unit of account means itis something that you can use it to compare the value of two items, or to count up the total value of your assets. It you record the value of all of your possessions, you need unit price of them. let ex. I had the 0.02 Lamborghinis worth of gadgets in my study.
There are several characteristics that define money:
Acceptability: Money must be accepted by a wide range of people and businesses in exchange for goods and services.
Divisibility: Money must be able to be divided into smaller units in order to facilitate transactions for smaller purchases.
Durability: Money must be able to withstand wear and tear over time, as it may be exchanged many times before it is eventually retired.
Portability: Money must be easy to carry and transport, as it is often exchanged at a distance from where it was originally acquired.
Scarcity: Money must be somewhat scarce in order to maintain its value. If it is too easy to obtain, it will not be perceived as valuable.
Forms of money
-> Barter
Barter is a system of exchange in which goods or services are directly exchanged for other goods or services, without the use of money as a medium of exchange. In other words, barter is a way of trading goods or services for something else of value, rather than using money to facilitate the exchange.
-> commodity money
Commodity money is a form of money that is backed by a physical commodity, such as gold or silver. In other words, the value of the commodity money is based on the value of the underlying commodity. Commodity money has been used throughout history as a medium of exchange. For example, gold and silver have been used as money for centuries because they are relatively scarce and durable, and they are relatively easy to transport and divide into smaller units.
-> Representative money
Representative money is a form of money that represents a claim on a commodity, rather than being the commodity itself. In other words, representative money is a financial instrument that can be exchanged for a certain amount of a commodity, such as gold or silver.
-> Fiat currency
Fiat currency is a type of money that is issued by a government and is accepted as a legal tender within a certain territory. It is not backed by a physical commodity, such as gold or silver, but rather its value is derived from the trust that people have in the issuing government and its ability to maintain the value of the currency. Fiat currency is widely used today as a medium of exchange in most countries around the world and is typically in the form of paper money or coins, but it can also be digital.
Money Through the Ages
Prehistoric societies (before 3000 BCE): Prehistoric societies used a variety of objects as money, including shells, beads, and other valuable items that were traded for goods and services.
Ancient civilizations (3000 BCE - 500 CE): Many ancient civilizations used metal coins as money. For example, the ancient Greeks used coins made of gold, silver, and bronze, and the ancient Romans used coins made of gold, silver, and copper. In addition, some ancient societies used other forms of money, such as paper money in China and metal tablets in ancient Mesopotamia.
Middle Ages (500 - 1500 CE): During the Middle Ages, gold and silver coins continued to be widely used as money, particularly in Europe. In addition, the use of paper money began to emerge in some parts of the world, such as China and Europe.
Modern era (1500 CE to present): In the modern era, most countries have adopted fiat currency, which is money that is issued by a government and not backed by a physical commodity. However, some people and organizations continue to use commodity money, such as gold or silver coins, as a form of investment or as a way to hedge against inflation or other economic risks. In addition, digital currencies, such as cryptocurrencies, have emerged as a new form of money in the 21st century.
What is Currency Peg?
A currency peg is a monetary policy in which a country's central bank sets a fixed exchange rate between its own currency and another currency, or a basket of currencies. The goal of a currency peg is to stabilize the exchange rate between the two currencies and reduce exchange rate risk for businesses and individuals. For example, if a country pegs its currency to the US dollar at a rate of 1:1, it means that one unit of the country's currency is worth the same as one US dollar. The central bank may intervene in the foreign exchange market to maintain the fixed exchange rate, or it may use other tools such as changing interest rates or foreign exchange reserves.
Take inspiration from Book the basics of Bitcoins and Blockchains.