Characteristics of Money

The Characteristics of Money:

Beyond the FUNCTIONS money should also have certain CHARACTERISTICS.

These characteristics of money help money fulfil its functions. Cash notes and coins and Debit cards are excellent form of money as they satisfy all these characteristics.

By contrast goods like chicken, bread or metals that may be useful for bartering rarely satisfy all or any of these characteristics. 

1-      Acceptable to all

We all need to be willing to accept money for it to be any use. If too many people stop accepting money, it will no longer be useful for transactions, it will stop holding value or you wouldn’t be willing to offer credit.

By contrast a good used for Barter like a chicken may only be acceptable to some people.

2-      Portable

We need to be able to be able to carry it around. Notes and coins are easy to move around.

By contrast chickens make a lot of noise, smell and may runaway.

3-      Durable

Money needs to last if it is to act as a store of value. Coin and notes last very well.

Chickens get old and die.

4-      Divisible

Pounds can be divided into pence and so forth. This allows for a greater range of prices making money as a unit of account work more effectively.

 I suppose a chicken could be divided up to a certain extent, but it would be messy.

5-      Limited in supply

Central banks limit the amount of money available. This means we still value that money, it acts as a store of value and can be used for credit.

Chickens are not really limited in supply, anyone could breed them and their value would then fall.

6-      Regulated

This is similar to the above. Central banks regulate money to make sure it maintains it value, can’t be forged easily and is therefore acceptable to all.

It would be very difficult to regulate chickens to make sure they are all of equal value.

It is worth noting that coins, notes and debit cards largely satisfy all these characteristics.

Other goods may satisfy some of them. Fine Art may be an excellent store of value, better than cash, but it is not very portable or divisible. Hence we might use Art to save our earnings but we still need cash to spend them.

Another example is alcohol or cigarettes which are often used as money when cash has lost its value. They are portable, sort of divisible etc. But they are not very durable, not as well regulated or acceptable to all. What about diamonds or gold?

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