7 Main Characteristics of Money

7 Main Characteristics of Money

Money is a medium of exchange that is centralized, generally accepted, recognized, and facilitates transactions of goods and services. Following are the 7 main characteristics of money.

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List of Characteristics of money

  1. Acceptability
  2. Durability
  3. Divisibility
  4. Portability
  5. Homogeneity
  6. Relative scarcity
  7. Non-counterfeit ability

Let’s discuss these characteristics separately.

1. Characteristics of Money: Acceptability

Acceptability economics definition of money means everyone accepts that money for the transactions. Money is universally accepted around the world as a universal mean for transaction. Acceptability supports the role of the exchange medium. Money must act as a thing that is acceptable to everyone and may be used without refusing to exchange for goods and services. So, acceptability of money is one of the most important money characteristics.

2. Characteristics of Money: Durability

Durability also refers to the ability of money to retain its value from one transaction to the next and cannot be quickly broken down, deteriorated, degraded, or change its form.

When we select a material as money, it should be remained for a long period of time without losing its value. So, durability of money is very important.

Gold, silver, copper, and nickel are a few examples of metals that have historically used as money. because they are materials that are extremely durable. This is because an ounce of gold or silver today will remain as an ounce of gold or silver tomorrow and even a thousand years later.

Today, money is produced using materials like paper, metal, and plastic, resulting in a durable medium. But, if we consider about perishable goods such as fruits, vegetables and meat, they lose their value very quickly. They are not durable. So, durability is one of the main money characteristics.

3. Characteristics of Money: Divisibility

The divisibility is a main characteristic of money. What does it mean to say that money is divisible?

Divisibility of money means a good money can be divided into small units to buy goods and services. Money needs to be divisible in order to be exchanged for all commodities and services, as well as everything in between, since it serves as the means of exchange. So, to function as a good medium of exchange, the characteristic of divisibility is very important.

As examples, if minimum denomination was $5, I could not pay $12. But, since there are $1, $2, $5 and $10, I can pay $12 without inconvenience.

Because each $1 is divided into 100 smaller units called pennies, U.S. currency can be divided.

4. Characteristics of Money: Portability or transportability

As a characteristic of money, portability means money should be easily transported from one place to another place when we use money as a medium of exchange. Also, when people purchase goods, they need to bring along their money. Hence, money must be portable or transportable.

In the 20th century, paper money which is lighter and easier to carry, and carrying gold or silver was difficult.

Money may now be quickly transported from one place to another without much effort because all forms of money, including coins, notes, and cards, fit comfortably in a wallet.

5. Characteristics of Money: Homogeneity

Another useful characteristic of money is that money should be homogeneous. Every type of money with the same denomination must have the same homogeneous purchasing power. As examples, every $10 note should be the same to each other. Every $10 not should be accepted by people without distinguishing them and every $10 note has the same purchasing power.

6. Characteristics of Money: Relative Scarcity

Is money scarce? Yes, supply of the money is limited when compared with the demand of money. Because the central bank controls the money supply. If the central bank does not control the money, the economy can be fallen into serious problems such as inflation, recession, and unemployment. So, the central bank uses monetary policy to control the money supply.

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Money Market Graph with Demand, Supply and Equilibrium

7. Characteristics of Money: Non-counterfeit ability

It is not easy to duplicate money. Because money duplication is illegal. Besides, preventing the duplication of money to happen is one of the main reasons for government existence.

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