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Key Characteristics of Money

• Durability i.e. it needs to last
• Portable i.e. easy to carry around, convenient, easy to use
• Divisible i.e. it can be broken down into smaller denominations
• Hard to counterfeit - i.e. it can’t easily be faked or copied
• Must be generally accepted by a population
• Valuable – generally holds value over time

Key Functions of Money

1. Medium of exchange: money allows goods and services to be traded without the need for a barter system. Barter systems rely on there being a double coincidence of wants between the two people involved in an exchange
2. Store of value: this can refer to any asset whose “value” can be used now or used in the future i.e. its value can be retrieved at a later date. This means that people can save now to fund spending at a later date.
3. Unit of account: this refers to anything that allows the value of something to be expressed in an understandable way, and in a way that allows the value of items to be compared.
4. Standard of deferred payment: this refers to the expressing of the value of a debt i.e. if people borrow today, then they can pay back their loan in the future in a way that is acceptable to the person who made the loan.

There are three main types of money: currency, bank deposits and central bank reserves