Money is the physical thing that you can think about, buy, sell and exchange easily. Money is any object or verified account that is normally accepted as payment for services and products and payment of liabilities, including taxes, in a specific country or socio-cultural context. In actual practice, money usually represents either an unassigned trust account or an accounts receivable. It can be represented by an IOU that you freely accept to pay for goods or services you receive while on credit.



The concept of money therefore implies the existence of potential sources of value beyond the use-value of the goods and services that it represents. Potential sources of value are referred to as present goods and/or services, future goods and/or services and potential prices. Potential prices refer to the changes that markets will impose on the exchanges that they normally make. They form the prices of future transactions.


The present goods or services that enter into exchanges are known as potential commodities. Commodities are goods whose prices, over time, tend to be determined by the prices of other commodities in the same market. The prices of these other commodities are determined by various factors, some of which are political, economic and social. They are subject to historical forces called “the market order” and to external constraints, including demand and supply. They are traded in standard markets, but can also be traded via futures, option, foreign exchange, commodity and bond markets.


Money, on the other hand, is a physical commodity. It is a means of exchange that enables one commodity to be purchased by another. Money, unlike goods and services, is not traded in any market. Instead, it is bought and sold in banks, central banks and other financial institutions. When money is issued, it is usually issued in denominations that are convertible into legal tender (pieces of paper with a particular value). That value may vary from day to day.


Money, unlike commodities, is not a potential product. Although money may be produced by a government or a bank at a certain point of production, money will never be produced in excess. Governments will usually borrow the money they need in order to finance their budget deficit. Central banks in most countries make money from their reserves. The central bank then lends this money to banks or other institutions so that they can make trades in goods and services that are denominated in their currency.


Money, unlike goods, is not produced in large quantities. Production of money depends on the activities of businesses and governments. Governments normally issue fiat money after winning a war. Private individuals also create money by borrowing it from a central bank. Usually, central banks repossess this fiat money when the issuing bank has no money to redeem it.


Money, unlike goods, is very difficult to transport. Borrowing money from a bank involves transferring ownership of a asset from one hand to another. In order to complete this transfer, many banks must operate very near to each other and the transfer is often accomplished using very high transaction fees and high interest rates. Money is much more difficult to move than goods since the cost of moving it is largely determined by how much money is being borrowed by the bank.


Money is the most widely and rapidly traded product in the world. The four major forms of money are bank notes, coins, pre-minted money created through a government, and commercial bank money. Bank notes are issued by governments but are not traded on the open market. Pre-minted money is traded on the open market and is the easiest to purchase since it can be instantly transferred to any number of financial institutions.


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