Money Explainer

Money explanation

While it may be true that ‘Geld Uitleg makes the world go round’, few of us can actually say we know exactly what money is and how it works. Money is a good that people use to buy and sell goods and services and to pay for debts. It also serves as a unit of account, which helps us keep track of the values of different kinds of goods over time.

Before the invention of money, most economies relied on bartering where individuals would trade goods they had for those that others had. This had the problem that both parties must have exactly what the other wanted in order for a transaction to take place. Money solves this problem by making it possible to exchange goods or services without having the two parties have a direct need for one another’s goods or services.

he Importance of Financial Literacy in Today’s World”

To qualify as money, an asset must serve all three of these purposes – it must be an unconditional means of payment; an unreserved store of value and a unit of account. For example, while a cowry shell or a basket of peppercorns might make an acceptable medium of exchange, they are not an adequate store of value or unit of account because they are perishable and it is difficult to trade them over long distances.

Banknotes and coins – the physical form of money that we focus on in this Explainer – are issued by the Reserve Bank of Australia under established agreements and can be purchased from it by commercial banks on demand from their customers. The growth in the value of banknotes and coins in circulation represents a growing demand for cash from the general public.

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