What is money ? Explain its characteristics.

Answer Details

Money is anything that is generally acceptable as a medium of exchange and in the final settlement of debts. Its acceptability, rather than the material it is made of, is what makes it money.

Characteristics (qualities) of good money:

• General acceptability. It must be freely accepted by everyone in exchange for goods and services; this is the most important quality.
• Durability. It should last long and not wear out or perish quickly, so it can circulate repeatedly.
• Portability. It should be easy to carry about, so that large value can be moved without difficulty.
• Divisibility. It must be capable of being divided into smaller units without losing value, so it can pay for both cheap and costly items.
• Homogeneity (uniformity). Units of the same denomination must be identical in quality and value.
• Relative scarcity. It must be limited in supply; if it were too plentiful it would lose value.
• Stability of value. Its purchasing power should not change too sharply, so that people trust it as a store of value.
• Recognisability (cognisability). It should be easy to identify and difficult to forge.

Examination takeaway: define money by its function (general acceptability as a medium of exchange), then list the qualities and add one line explaining why each quality matters, rather than naming them bare.