Source: Good money must have the following 7 characteristics. The value of money should not depreciate with the passage of time. The durability of modern money, especially and bank account balances, depends on the durability of social institutions--especially banks and governments. Portability: A commodity fit to be used as money must be such that it can be easily and economically transported from one place to the other. Relatively inelastic should be compared with other elasticity alternatives--relatively elastic, perfectly inelastic, perfectly elastic, and unit elastic.
Then the retailer got the bad end of the deal. Paper notes and modern coins of different denominations are identical in size and color; therefore they can be recognized very easily. A paper can last only for few months if it remains in circulation and a coin can work §s a medium of exchange for many years. In other words, it must possess high value in small bulk. Unless a person knows that the money which he accepts in exchange for his goods or services will be taken without any objection by others as well, he will not accept it. This feature makes the barter system highly inefficient.
Indestructibility or Durability: As money is passed from hand to hand and is kept in reserve, it must not easily deteriorate, either in itself or as a result of wear and tear. In fact, this task is one of the prime reasons why governments exist. It is of such a nature that central authority is able to keep records of the amount of money in circulation and the pattern of its distribution. The money system is unlike the barter trade system, which is inefficient because it requires people to have a double coincident of wants. Money serves as a store of value, a unit of account and as a medium of exchange. Money eliminates the need to barter for things.
For example, it used to be somewhat common in countries with unstable governments and also in prisons to use cigarettes as money, even though there was no official decree that cigarettes served that function. Metals are most durable as compared to other forms of money. However, anything can act as money as long as it serves its three main functions. While physical durability has been historically important for money, social and institutional durability is also important for modern economies. Currency does not have one of the 7 characteristics below — store of value. The use of money makes it possible for payments to be deferred from the present to some future date.
An ordinary person should be able to judge the correctness of money. But what if the chicken were sick and couldn't lay eggs? Try any of our Foolish newsletter services free for 30 days. The business needs from season to season. In modern days people have notes and coins from low values to high value where they are used to divide money into small units of account. An item works as a medium of exchange precisely because it stores value from one transaction to the next. Homogenius: Every note or coin of the same value should be exactly the same. Money market instruments such as federal funds and repurchase agreements exemplify the short maturity of money market securities; they represent significant holdings in most money market funds and typically mature in less than one week.
Stability of Value:- Good money is that whose value is fairly stable. It should be neither too hard nor too soft. Their portions can be melted and remelted together any number of times without much loss. Sometimes, depending on the market, that's not easy to do. The University of Minnesota says that. Instead of obtaining funding for operating expenses or capital investment as they would with the capital markets, the money markets are often used to fund immediate operating expenses or to provide working capital.
The imitation is not possible, because the process of coloring and the quality of paper are always in the hands of central bank. It is possible only if the money is divisible into small units. It practically happened in Kuwait during the gulf war, when people refused to accept Kuwaiti Dinars in payments. Instead, they became widely accepted as payment for goods and services and prices began to be quoted in the number of cigarettes rather than in official currency. Consider what would happen if money did not exist. Don't wait for something outside of yourself to make you happy in the future. Stability of Value: Money should not be subject to fluctuations in value.
These have been discarded in the past in favor of paper currency and bank money. The ideal money commodity should, as such, possess utility, portability, durability, homogeneity, divisibility, malleability, Cognoscibility and stability of value. In economics, the term money is used specifically to refer to currency, which is, in most cases, not an individual's only source of wealth or assets. Fluctuating standard of value is just like a changing yard or kilogram. An ounce of gold today will be an ounce of gold tomorrow, next week, and a thousand years hence.