Money is an important factor for us all as it opens many opportunities and new ideas required for the overall social, physical, emotional, and economic growth of an individual. This brings all of us happy to a great extent and we all yearn for more. One cannot function well without this, so let us look into the characteristics of good money, the main functions of money, and what is good money in economics.
1. What are the 2 Definitions of Money?
Money is something we cannot live without in this world and it is essential, despite how much ever one denies the fact. Synonyms that are used for money are bucks, currency, cash, and legal tender among others. There are many ways money can be defined, two of which are going to be discussed here:
- Money can be an official currency that is stamped and accepted as a medium of exchange and has value. This can be considered a denomination of either coin or paper money.
- The second definition of money is something that is a commodity being accepted as a medium of economic exchange. Do note that before money came into existence, the barter system was used to exchange and get the essentials.
2. What are the Six Characteristics of Money?
Some characteristics of good money are as follows. One knows that money is an important factor for everyone and in every aspect.
- Durability: Money is something that is durable and this can be seen from the remains of coins and currencies that archaeologists have been able to dig up. This has helped us understand early life and how money was used at that time.
- Portability: Money is a portable material which means that it has the ability to be easily carried or moved around by people. This is something that is carried around in wallets or purses and today one need not even carry money in hand because it is available digitally.
- Divisibility: This means that money has a property that can be broken into smaller amounts without losing its value. Little bits of money make up a huge amount such as multiple coins making up the same value as the higher numbered notes.
- Uniformity: One of the characteristics of money is uniformity which means that coins and bills need to look the same. For instance, one 100-dollar bill should look the same as another 100-dollar bill but this is done in a way that one 100-dollar bill will not be the same as a 100-rupee bill.
- Limited supply: There is a limited supply of money and these very coins and bills go around in a cycle between people while keeping their value.
- Acceptability: The currencies are universally accepted by governments and people.
3. What are the 4 Types of Money?
The 4 types of money are as follows:
- Commercial money: This is the money that is of deposit balances and can be transferred to self-linked accounts or to others by means of paper orders such as cheques or electronically, that is using cards, wire transfers, or internet payments.
- Fiduciary money: This is another type of money that uses coins and banknotes but this is available in the economy and is used as a medium of exchange between people. This exists because there is trust between the payer and the payee.
- Fiat money: This is a type of money that is backed by the government, which means the money is issued by the government and thus, the central banks have control over how much money can be printed. The US dollar, the euro, and the Indian rupee are all examples of fiat money.
- Commodity money: Commodity money is known to be tangible goods that have intrinsic value and can be used to exchange to get money. Gold and silver coins are great examples because apart from having high value on their own, they can be exchanged to get money as well.
4. What are the 3 Main Functions of Money?
Money is an important factor and some of the main functions of money are as follows:
- Store of value: Money can be used to buy something and can be retained over time. This is known to be the most liquid asset and also a convenient way to store wealth.
- Medium of exchange: This is used as a medium of exchange to buy goods and services while money is given in return for these. The early times used the barter system to exchange one thing for another, but this changed once money came to be used in the economy.
- Unit of account: Money is used as the common standard to measure the worth of goods and services.
5. What are the Principles of Money?
Now that the characteristics of good money have been discussed let us look at the principles of money. Some of the principles are:
- Investing: You should always invest in things that are useful and things that you need rather than things that you want. This is an important factor that needs to be followed well to make use of the characteristics of good money and also invest time in looking for items you need to invest money on.
- Spending: Make sure that you spend less than you earn and that you do not spend before you get it in hand. Once you get money, you are bound to make purchases but keep a track of where and how you spend it.
- Saving: You need to make sure you have savings, and this can only be done if you monitor the spending and the investment of your money. Before trying to spend, make sure to save a part of it to be used during rainy days.
- Giving: It is always a good deed to give a part of your earnings to someone in need or something which you think is a good thing to give. Donations and charities are an example of these.
- Borrowing: Borrow only when necessary else you have to pay high interest.
6. What is the Importance of Money?
Money is a very important factor because of which the whole world runs.
- Every economy has money as the main criterion, and this also leads to the preservation and regulation of money by certain government authorities so that everything is managed well.
- They say money cannot buy happiness, but it does, to a great extent. It is a necessity and because of it, we are able to get a good enough education, pay bills, get a roof over our heads and buy food.
- This can also be used to get safety and security for you and the ones you love.
You must be always aware of the characteristics of good money and need to make sure that you spend and save wisely so that there is no issue with money management that you will get. It is pretty easy to run out of money as well, so one needs to be careful. Now that everything is digitalized you need not even carry money in cash because online transactions are the thing at the moment. (See How much money is in the world?)
7. What is Good Money in Economics?
Good money in economics is known to be of greater intrinsic value or has more potential for its value than its face value. When the value of a particular currency is high it means that the worth and value of that particular currency is more compared to other currencies which makes the economy thrive.
For instance, the Indian rupee has always had a low value as compared to the US dollar or Australian dollar but at the same time has been higher than the Japanese Yen. Also, at this point in time, the money of an economy is an acceptable medium of exchange with another economy as it is easily liquidated and is available for use at the same time. (See What is a Fundamental Economic Problem?)
8. What is an Example of Good Money?
Good money is the money that the people and the economy accept, is stable, and can be trusted on how much ever the value of money changes. Coins and currency notes and bills have always been part of the present and past human race and are used to exchange goods and services. Must read Who Invented Paper Money?
An example of good money is money that runs well in the economy, a continuous cycle of giving and taking, and is earned by ethical and legal means rather than black money which is an illegal way of getting money.
9. What are Characteristics of Good Money?
Some more characteristics of good money are stated below:
- Homogeneity: You might have noted how all notes of a particular value look the same. For instance, all 500-rupee notes look the same and this is what homogeneity means.
- Stability: Good money is always stable and can be trusted by the population that uses the currency. Cash is liquid and this makes it pretty stable.
- Cognizability: The ability for one to look at a note and understand its worth and value is extremely important for recognizing the characteristics of good money.
This article wanted to give a glimpse of what is money and its main functions of money. Everyone is now aware of the worth and value that money holds and so they respect it. This also went a bit to make you understand the characteristics of good money and what is good money in economics. Be sure of where you invest, how much you spend, and how you save your money. (Also read Where do Banks put their Money?)