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Money - Desirable features of money

Money - Desirable features of money: Encyclopedia II - Money - Desirable features of money

To function as money, the monetary item should possess a number of features: To be a medium of exchange: It should be liquid, easily tradable, with a low spread between the prices to buy and sell. A low spread typically occurs when an item is fungible. It should be easily transportable; precious metals have a high value to weight ratio. This is why oil, copper, or bricks are not suitable as money. Paper notes ...

Money: Encyclopedia II - Money - Desirable features of money

Money - Desirable features of money

To function as money, the monetary item should possess a number of features:

To be a medium of exchange:

It should be liquid, easily tradable, with a low spread between the prices to buy and sell. A low spread typically occurs when an item is fungible.
It should be easily transportable; precious metals have a high value to weight ratio. This is why oil, copper, or bricks are not suitable as money. Paper notes have proved highly convenient in this regard.

To be a unit of account:

It should be divisible into small units without destroying its value; precious metals can be coined from bars, or melted down into bars again. This is why leather, or animals are not suitable as money.
It should be fungible: that is, one unit or piece must be equivalent to another, which is why diamonds or real estate are not suitable as money.
It must be a certain weight, or measure, to be verifiably countable.

To be a store of value:

It should be long lasting, durable, it must not be perishable or subject to decay. This is why food items, expensive spices, or even fine silks, are not generally suitable as money.
It should have a stable value; a value intrinsic in itself, such as a luxury item, scarce, or rare.
It should be difficult to counterfeit, and the genuine must be easily recognizable. These reasons are why paper, or electronic credits, are often not desirable as money.

For these reasons, gold and silver have been chosen again and again throughout history as money in more societies and in more cultures and over longer time periods than any other items; and when embraced as money, those societies inevitibly prosper under what is often called a golden age.

One key benefit of these features of money is that it facilitates and encourages trade; because barter is inefficient.

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Adapted from the Wikipedia article "Desirable features of money", under the G.N U Free Docmentation License. Please also see http://en.wikipedia.org/wiki

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