Money is an integral part of our lives. It is a medium of exchange in the form of coins and banknotes. All goods and services are expressed in terms of money or currency of a country
Everyone uses money. We all want it, work for it and think about it. While the creation and growth of money seems somewhat intangible, money is the way we get the things we need and desire. The task of defining what money is, where it comes from and what it's worth belongs to those who dedicate themselves to the discipline of economics. Here we look at the multifaceted characteristics of money.
Medium of Exchange
Before the development of a medium of exchange – i.e., money – people would barter to obtain the goods and services they needed. Two individuals, each possessing some goods the other wanted, would enter into an agreement to trade.
This early form of barter, however, does not provide the transferability and divisibility that makes trading efficient. For instance, if you have cows but need bananas, you must find someone who not only has bananas but also the desire for meat. What if you find someone who has the need for meat but no bananas and can only offer you bunnies? To get your meat, he or she must find someone who has bananas and wants bunnies...and so on.
The lack of transferability of bartering for goods, as you can see, is tiring, confusing and inefficient. But that is not where the problems end: Even if you find someone with whom to trade meat for bananas, you may not think a bunch of them is worth a whole cow. You would then have to devise a way to divide your cow (a messy business) and determine how many bananas you are willing to take for certain parts of your cow.