Everyone certainly knows what money is, but not everyone understands the true meaning of money.
Money is used as a tool for transactions in various fields, money is a medium of exchange all over the world today.
Money is also a legal medium of exchange, and money is often used for buying and selling activities.
Money has a certain face value, which serves as the standard measure of money itself.
The following article will discuss about MEANING OF MONEY: History, 2 Functions, Terms and Types as discussed below.
The understanding of money is divided into two, the first is traditional economics and modern economics.
According to the traditional economic meaning, money has the meaning of a medium of exchange (exchange).
Not just using money but other objects can be used as exchange value such as gold, silver and other valuables.
Even salt can also be used as a legal medium of exchange between buyers and sellers.
Meanwhile, in the modern economy, the meaning of money has a very broad meaning, not only as a means of paying for services or goods, but also for paying off debts and so on.
Money is also considered a reference value of a person’s wealth, the more money he has, the more he can be called a rich person or a lot of money.
Broadly speaking, the function of money is as a medium of exchange for goods or services.
Money is also used to avoid exchange transactions that are less effective. In economics, there are two functions of money, namely the original function and the derived function.
1. The Original Function of Money
The original function of a monetary value, divided into 3 parts, is:
- Money as a medium of exchange or so-called medium of exchange serves to facilitate a payment (exchange). Conditions where exchange is often an obstacle in a transaction, so cash is an alternative solution to facilitate the exchange of goods and services.
- Money is a unit of calculation, the value of money itself is intended to estimate, calculate and value goods and services. It can also be used as a measure of wealth itself, as an indicator of the price of goods and services, a unit of account to facilitate your transactions, profit, loss or borrowing.
- Money as a storage medium in the form of a certain value or so-called nominal currency. This is intended to save the value of purchases in the future.
2. Money Derived Function
In addition to the above functions, money itself has a derived function, or other called functions, including the following:
- Cash as legal tender when making buy and sell transactions.
- Money is used as a means of accumulating wealth, where money can be deposited in the bank every month.
- Money as Wealth Transfer. This situation applies when someone sells land, a house, an automobile or a motor vehicle to be exchanged for cash to someone else.
- Money as legal tender. When the barter system is no longer applied, money is considered a legal means of paying off debts.
- Money as a tool of economic movement. This is related to when the value of a currency undergoes an increase or decrease that affects market activities in society.
A Brief History of Money
Before modern civilization where money was known, humans for their daily needs depended on and enjoyed only the nature around them.
For food, shelter and even clothing needs, they either use nature or make their own.
But gradually the developments changed and made them realize that these needs were not enough, and they needed other goods or services through the services of others, so that was the beginning of the barter system.
Barter is an exchange of goods between each other in accordance with the agreement between the two parties, exchanging goods.
But this system is considered less efficient in the economic transactions of the community, so people start making silver and gold coins.
At that time, the value of coins and silver was considered better for carrying out economic activities, such as buying clothes, services and other goods.
People can also make their own coins with no maximum or minimum restrictions, so many people accumulate their own coins.
However, because the price value of goods continued to increase while the number of coins was quite limited at the time, it started with the introduction of paper money with a much higher nominal compared to coins.
So, people started to get used to using paper money as an economic activity, while coins made of gold were used as a different measurement value.
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For cash terms apply with the following conditions:
- Acceptability, meaning it can be accepted as proof of legal tender by the community, especially among merchants and buyers
- Items to be traded must comply with government regulations
- Money should be made from materials that are durable and won’t fade
- have the same quality
- Nominal money in the market can meet community needs
- The money must have conditions that are easy to transport anywhere
- The money should also be easily divided (exchanged with a nominal one) without reducing the amount of money itself.
- Money must have stability from time to time in the long run
type of money
You need to know the types of money that are legal in each country. Here are the types:
- Currency is an amount of money that is authorized by the state to make payments for any transaction.
- Demand deposit is nominal money in different forms and can be done at any time. For example, check.
- Meanwhile, when viewed from the material of manufacture, there is paper money and coins.
- Coins are made of gold and silver. But the materials for making money have changed and been replaced by more durable materials. Generally the value of coins is not great.
- Banknotes are made of paper material which has a very high strength.
- The face value of banknotes is much higher than that of coins. However, the intrinsic value of paper money is completely absent.
- However, according to its value, the money is divided into 2, that is, total money and token money.
- Full cash itself means that the nominal value stated on the cash is the same as the exchange rate or the intrinsic value of cash without the minimum being deducted.
- Sign money has meaning if the nominal money listed is greater than the value of the materials used to make money. For example, if the government wants to make money worth Rp. 2000, so he has to pay Rp. 1,500 first.
- Money that exists in the development of modern times today is a mandatory and legal means of payment used by all levels of society to obtain their daily needs. The intrinsic value of money varies according to the material it is made of.
use of money
Basically, money is used as a medium of exchange, because money is a legal medium of exchange in economic activities.
For example, buying farm equipment, paying for services, paying for various facilities, and so on.
In addition, you can also use the money to be saved or saved as a form of savings if needed at any time.
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In the modern economy, the meaning of money has a very broad meaning, not only as a means of paying for services or goods, but also for paying off debts and so on.
Money is valued as a reference value of a person’s wealth, the more money he has, the more he can be called a rich person or a lot of money.
Money is also used to avoid exchange transactions that have less effective value, in economics there are two functions of money, namely the original and derivative functions.
That’s why it’s important to be able to understand more about MEANING OF MONEY: History, 2 Functions, Terms and Types.