What is Money?
Pyyhkäise näyttääksesi valikon
Money is at the core of every economy, but its true power comes from the roles it plays in daily life. Money serves three main functions: it acts as a medium of exchange, a unit of account, and a store of value.
The Three Roles of Money
As a medium of exchange, money is what you use to buy goods or services. When you pay for groceries with cash or swipe a card at a store, you are using money to facilitate trade, avoiding the need to barter apples for bread.
Money is also a unit of account, meaning it provides a standard way to measure and compare the value of different things. When you see that a coffee costs $3 and a sandwich costs $6, you can quickly understand their relative prices because both are measured in dollars.
Finally, money is a store of value. This means you can save it today and use it in the future, trusting that it will still have purchasing power. For example, if you earn $100 and keep it in your wallet, you expect to be able to spend that $100 next week or next month to buy what you need.
Over time, these functions have shaped how societies use and think about money, making it far more than just coins or bills in your pocket.
The History of Money
The story of money began with barter: people exchanged goods and services directly, such as trading wheat for shoes. This system had clear limitations, especially when two people did not want what the other offered at the same time. To solve this, societies turned to commodity money - objects with value in themselves, like gold, silver, salt, or even cattle. These commodities were widely accepted and could be used for trade, making transactions easier and more reliable.
On the Pacific island of Yap, people used giant stone wheels (some weighing over a ton) as money. They didn't move them when ownership changed — they just remembered who owned which stone. That's how trust-based money has always worked.
Fiat currency works because people trust that it will be accepted by others and retain its value over time. This trust is built on government backing: the government guarantees that you can use its currency to pay debts and taxes. As long as people believe in this guarantee and the government maintains stability, fiat money continues to function effectively. Without this trust, money would lose its role as a reliable medium of exchange, unit of account, and store of value.
In 2008, Zimbabwe printed a $100 trillion banknote. Hyperinflation destroyed faith in the currency, and by 2009 the country had abandoned its own money. That's what 'loss of trust in fiat' looks like in practice.
1. What are the three main functions of money
2. Match each function of money with the right scenario:
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