What is money?
Definition
Money is a means of payment that can be used for further exchange due to general acceptance.
Properties
Money should ideally have the following properties:
rare/ non-reproducible/ unchangeable
scalable/ divisible
transportable
Functions
Money is generally accepted for trade.
Money is a store of value.
Money is a unit of account or measure of value
The better the money functions are fulfilled, the more likely something is to be regarded and accepted as money.
History
In the history of man there have been many forms of money. One of them was gold, as it became established as money because of its properties. Nowadays, gold is still traded, but it is no longer considered money, as it has long since been replaced by coins and bills.
With the gold standard, government money was backed by gold, which stabilized the currency. However, this was abandoned for the FIAT standard, which means that our current money is not backed by any store of value.
Money is a universally recognized medium of exchange that serves as a measure of the value of goods and services. It is used to facilitate and standardize the exchange of goods and services.
Money has three main functions: It serves as a medium of exchange, a store of value, and a unit of account. As a medium of exchange, it enables the exchange of goods and services without the need for a direct exchange of goods. As a store of value, it enables the value of assets to be preserved over a longer period of time. As a unit of account, it enables the value of goods and services to be measured and compared.
Money can appear in various forms, such as coins, banknotes, digital currencies, or as a balance in a bank account. It can be issued by governments, as in the case of legal tender such as the U.S. dollar or the euro, or by private companies, as in the case of cryptocurrencies such as Bitcoin.
Money has an important role in the economy and in daily life. It enables people to buy and sell goods and services, build and maintain wealth, and facilitates trade and transactions on a global scale.
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The history of money
The evolution of money is a long and complex story, dating back to the earliest human societies. Here are some important milestones in the evolution of money:
Barter: In primitive societies, trade was facilitated by the exchange of goods and services. For example, a farmer might trade his crops for clothing or tools.
Money in kind: Over time, some societies began to use certain goods as commonly accepted mediums of exchange. For example, shells, salt, or livestock were used as money in kind.
Coins: The first coins were minted in the 7th century BC in Lydia (modern western Turkey). Coins were made of precious metals such as gold or silver and had a fixed value.
Paper money: Paper money was first used in China in the 7th century. It was issued by the government and was backed by precious metals.
FIAT money: In the 20th century, most countries moved from the gold standard to the fiat money system, where the currency is backed not by a physical commodity but by trust in the government and central bank.
Digital money: With the development of the Internet and technology, digital currencies such as Bitcoin and other cryptocurrencies were introduced. These currencies are based on decentralized networks and are not controlled by governments or central banks.
The evolution of money is an ongoing process, and it is likely that new forms of money will develop in the future.
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Inflation
Inflation is an increase in the general price level of goods and services in an economy over a period of time. In other words, inflation means that the prices of things we buy go up and our money becomes worth less. Inflation is often expressed as a percentage and can be measured in a number of ways, such as the Consumer Price Index (CPI) or the Producer Price Index (PPI).
Inflation occurs when the general prices of goods and services in an economy increase. There are several factors that can contribute to the occurrence of inflation, including:
Excess demand: When demand for goods and services exceeds supply, prices can rise because consumers are willing to pay more to get what they want.
Cost inflation: When the cost of producing goods and services increases, businesses may be forced to raise prices to maintain profit margins.
Money supply: When the money supply in an economy grows faster than the production of goods and services, this can lead to inflation because there is more money competing for the same amount of goods and services.
Imported inflation: If the prices of imported goods and services rise, this can lead to inflation as companies are forced to pass on the higher costs to consumers.
Wage-price spiral: When wages rise, companies may be forced to raise prices to compensate for higher labor costs. This can lead to a vicious cycle in which higher wages lead to higher prices, which in turn require higher wages.
Inflation can have negative effects on the economy, such as reducing the purchasing power of money, increasing interest rates, and reducing investment. Governments and central banks therefore try to control inflation through various measures such as interest rate increases, monetary policy and regulation of the money supply.
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Are cryptocurrencies money?
Ideally, money should have the following characteristics:
rare/ non-reproducible/ unchangeable
scalable/ divisible
transportable
Cryptocurrencies are often referred to as digital money because they can be used as a medium of exchange and have some of the characteristics of traditional money. They can be used to purchase goods and services and have a value that is determined by supply and demand.
However, there are some differences between cryptocurrencies and traditional money. Cryptocurrencies are decentralized and are not controlled by a central authority such as a government or central bank. They are also not physically printed or minted, but exist only digitally.
Another difference is that cryptocurrencies are often considered an asset class and their prices can fluctuate wildly. This is in contrast to traditional money, which is usually more stable and not subject to such strong price fluctuations.
In some countries, cryptocurrencies are recognized as legal tender, while in others they are not yet fully regulated. There are also some legal and tax issues related to cryptocurrencies that are not yet fully resolved.
Overall, it can be said that cryptocurrencies have some of the characteristics of money and can be used as digital money. However, there are also differences and challenges related to their use and regulation. Cryptocurrencies should meet the prerequisites to be recognized as money. They are also secure, decentralized and easily accessible.
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World's money volume
All the money in the world can be broken down in different ways, depending on what kind of money you are looking at. Here are some estimates based on various sources:
Cash: According to estimates by the International Monetary Fund (IMF), there is about $7.6 trillion in cash in circulation worldwide.
Bank deposits: Assets in bank accounts are more difficult to estimate because they vary from country to country and from bank to bank. According to an estimate by the Bank for International Settlements (BIS), global assets in bank accounts totaled about $120 trillion in 2019.
Stocks and bonds: Assets invested in stocks and bonds are also difficult to estimate, as they fluctuate from day to day. According to an estimate by Credit Suisse, global assets in stocks and bonds were about $200 trillion in 2020.
Real Estate: Assets invested in real estate are also difficult to estimate, as they vary from country to country and from region to region. According to an estimate by Savills, global assets in real estate amounted to around USD 280 trillion in 2020.
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Financial Crisis
Cryptocurrencies are a relatively new asset class that emerged during the 2008 financial crisis. The financial crisis showed that the traditional financial system is vulnerable to instability and manipulation, which led many people to seek alternative forms of investment.
In this context, cryptocurrencies such as Bitcoin and other digital assets have gained prominence as they are seen as a decentralized and independent alternative to the traditional financial system. Cryptocurrencies are run by a decentralized network of computers and are not dependent on governments or financial institutions.
During the financial crisis, many people lost their trust in the traditional financial system and started investing in cryptocurrencies to protect their assets. This led to an increase in interest in cryptocurrencies and a rise in digital asset prices.
However, cryptocurrencies are also prone to volatility and uncertainty, which means they are not immune to financial crises. In fact, cryptocurrencies have also experienced sharp price fluctuations in the past due to various factors such as market manipulation, regulatory uncertainty, and technical issues.
Overall, cryptocurrencies gained prominence during the financial crisis as an alternative to the traditional financial system. Although they are not immune to financial crises, they still offer a decentralized and independent alternative that is appreciated by many investors.
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