The Nature of Money

The Nature of Money


The Nature of Money

Money is the most basic need of people in all human societies. Money is any verifiable document or asset that generally constitutes payment of obligations for goods and/or services and payment of debts, including taxes, in a specific nation or socio-cultural context. In its simplest form, money is a bundle of cash that has been issued under the law of ownership. It is considered legal tender and in the legal sense, it is always convertible into legal tender (in the case of currency) when required.

The modern era of globalisation has seen major changes in the function of money. Several mediums of exchange have evolved such as stocks, futures and options, securities, derivatives, central banks, paper notes and computerised monetary instruments. All these have had a profound impact on money as a medium of exchange. One such example is the development of stock markets in numerous countries and the adoption of a variety of trading systems such as the London interbank offer, the ISX, the EFT and futures market.

Barter transactions are usually accompanied by the concept of peer to peer lending. These have enabled the evolution of financial services such as loans, credit, settlement and the provision of goods and services, which are now easily accessible through the Internet. Online bartering has facilitated direct online sales and purchases of goods, services, commodities, assets and services to third parties with lower costs. This form of online sales has increased over the past few years, due to the evolution of web technology, and the opening up of new information and communication systems.

Money is not only a medium of exchange in everyday life but also in the complex systems of deferred payment and cross margin trading. Deferred payment occurs when an investor gives an order to buy or sell a stock or commodity, and the order is not acted on until a later date, typically within one day. Cross margin trading, on the other hand, involves the commission of broker dealers who buy or sell shares of stock or currency from their clients and then hold these shares for an extended period of time. The sale of these shares in the open market by brokers to investors could create a margin call, which is an order that requires an additional amount of money upfront to the broker in exchange for the agreed exchange of shares between the buyer and seller. These transactions take place in the same way as those of a traditional stock exchange, whereby the buyer pays the seller, and the seller then pays the buyer.

Money is also a medium of exchange in the context of market-determined money. Market-determined money is normally a physical commodity such as gold, silver, wheat, pork bellies, bank notes, or currency. These goods are usually bought and sold in predetermined quantities, at pre-decided prices, and only during specified hours. This type of money is commonly used as a global money transfer mechanism; however, it can also be converted into various other foreign currency types, including the domestic ones. It can be traded for goods and services on the commodities market, over the Internet, or through wire transfer.

Money may be defined as the value that is transferred between parties in future transactions between them. Money is a standard unit of account in all civilizations, and in all nations, since the earliest times. Modern economic theory suggests that money is a powerful agent of change, capable of influencing human actions through its use-value, which varies according to the relative scarcity and demand for the good that will exchange hands. Money, therefore, is not a physical object but a process of exchange that depend on the use-value of goods for the function of being a medium of exchange. As such, money-marketplaces often facilitate future transactions that may involve complex financial instruments such as futures, options, and currencies.