What money is

Money includes more than just the paper and coin currency exchanged between merchants and their clients. Money has existed for 1000's of years as a convenient replacement to barter. In the course of history, money evolved and took many forms as it does today. For example, in some countries, compacted bricks of tea leaves are used as currency and exchanged for other products.

Since the tea is a commodity that has value in overseas markets, the compacted bricks of tea have intrinsic value therefore it is used as money. In fact, anything that has intrinsic value whether it be via confidence in the "currency" i.e. medium of exchange or real value in terms of demand within an economy.

The different forms of money

As noted above money comes in different forms, even tea leaves, and thus any medium of exchange that is used to represent value can be thought of as money. In many societies and economic systems, money has taken on several key distinctions including its shape, capacity, production, role in an economy and the way it is given value. A few such different forms of money are the following:

• Electronic money
• Plastic money
• Paper money
• Metal money
• Credit money
• Collateralized money

Each of the above forms of money serve different purposes have differing physical or non-physical features and are exchanged differently. Before the advent of digital technology, telephone wires, and computer information technology, paper money and metal money were by far the largest source of money in the world. More recently however, electronic money in the form of digital account balances and electronic credit are exchanged using financial clearinghouses, wire transfers, and credit recording equipment.

Factors that affect the value of money

Money is valued and given worth through a number of economic mechanisms. Historically, money was "backed" by gold or other precious metals, but in more recent times, the gold standard has been reduced or done away with completely. When money isn't backed by gold, it is valued by market forces such as economic performance, money supply, and more indirect forms of collateral such as a country's financial capacity, political stability and natural resources.

Other financial and economic factors that can influence the value of money are leveraging, interest rates, and inflation. Generally, money's value is an indicator of economic events within a matrix of influencing factors such as those mentioned in the last sentence. Inflation is often thought of as the rise in the cost of goods and services over time. Additionally, as money supply increases, the demand for it goes down, potentially causing the cost of services to rise.

Thus, over time, as things cost more, the ability of currency to pay for things declines, and therefore so does its value in terms of purchasing power. Furthermore, low interest rates charged by national banks can spur lending and increase money supply which generates more wealth. However, this increase in wealth can cause the cost of things to rise thereby lowering the value of the money.

In culmination, money is a multi-faceted medium of exchange that takes on many forms, is valued by different economic forces and is used in various ways. Money has evolved as a matter of convenience, efficiency and economic management. With the advent and spread of technology in the 20th and 21st centuries, money has taken on new roles, sophistication, application and valuations.

Indeed, money may continue to evolve into ever different forms and uses. Furthermore, if history is any indicator, money will continue to exist as culturally relevant invention that facilitates the expression of human life, production, consumption and economy for many years into the future.