A Money Explanation

Gelduitleg the world go round, as the saying goes, but few people know exactly what it is and how it works. While it has changed considerably since the days of cowry shells and skins, its core function remains the same: a medium of exchange that allows people to trade goods and services without the hassle of bartering. It is this function that we explore in this article.

Money is any asset that represents perceived value and is used to facilitate transactions within a given economy. There are many different things that have been used as money over the years, including gold, furs, and even salt, but today we rely on paper notes and coins that have a standardized value and are widely accepted. They also replace the need to carry around tradable commodities like gold, furs, or spices that might be heavy or go bad over time.

Money Matters: Navigating Personal Finance Challenges

It is this combination of functions that defines money and allows us to do the global trade that is so vital to our economic well-being. To measure the amount of money that exists in an economy, economists use monetary aggregates such as M1 and M2 to categorize financial assets based on their liquidity.

While these monetary aggregates are helpful, they only capture a small portion of the complexity of what money really is. This article is aimed at helping people understand what it is that is so important about the little pieces of paper we hold in our hands.