Money

Money is any marketable good or token used by a society as a store of value, a medium of exchange, and a unit of account. Since the needs arise naturally, societies organically create a money object when none exists. In other cases, a central authority creates a money object; this is more frequently the case in modern societies with paper money.

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The value of money emerges in no small part from its utility as a medium of exchange, however its utility as a medium of exchange depends on it having recognised market value. Hence these two aspects of money are interdependent.

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Commodity money was the first form of money to emerge. Under a commodity money system, the object used as money has inherent value. It is usually adopted to simplify transactions in a barter economy; thus it functions first as a medium of exchange. It quickly begins functioning as a store of value, since holders of perishable goods can easily convert them into durable money. In modern economies, commodity money has also been used as a unit of account. Gold-backed currency notes are a common form of commodity money.

Related Topics:
Inherent value - Currency

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Fiat money is a relatively modern invention. A central authority creates a new money object that has minimal intrinsic value. The public's use of the money exists only because the central authority mandates the money's acceptance under penalty of law. In cases where the public loses faith in the fiat money, there is little a central authority can do to prevent the adoption of other money objects by society.

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