How Is Money Seen In The Economy

How Is Money Seen In The Economy

What is money?

So, what exactly is money? People use the term money to refer to a variety of things. Money is often used interchangeably with the term “wealth.” And if that’s the case, it can be believed the definition of money that we should concentrate on today is something that you can use to purchase goods and services. Market-determined legal tender or fiat money, money substitutes, and fiduciary media, and electronic crypto currencies are all examples of money.

functions of money

What are the functions of money?

Medium of Exchange: Money serves as a medium of exchange is when it is utilized to facilitate the exchange of commodities and services.

Unit of Account: It is a unit of measurement for the market value of products, services, and other transactions. Money must be divisible into smaller quantities without losing its value to serve as a unit of account.

Store of Value: To function as a store of value, money must be reliably kept, stored, and retrieved. It must be usable as a medium of trade in a predictable manner once it is retrieved.

Qualities of money

What characteristics must it possess? Money has four essential features. To be able to buy stuff with money, it must be divisible. It must be long-lasting to maintain its worth throughout time. It needs to be portable so that you may give it to someone else. It has to be recognizable—when you enter into a transaction, people should look at this money and tell how much it is worth.

 Early Forms of Money

Gold and silver were used as currency in many early societies. They were indestructible, possessed intrinsic value, and were easily movable and divisible. The government issued gold and silver coins.

Long before European contact, indigenous peoples in North America were trading and bartering for commodities and services. People used copper, precious metals, furs, and other resources to create an early monetary system. The wampum belt, for example, has become a symbol of early Indigenous cash; nevertheless, it was not utilized as currency before Europeans arrived. People used wampum belts to signify agreements of mutual respect and peace between First Nations and European newcomers during European contact.

Forms of Money

 Evolution from commodity to money

A statute was passed in 1858 requiring the government of the Province of Canada (now Ontario and Québec) to keep its accounts in dollars rather than pounds. Simultaneously, the government began issuing its currency to circulate alongside the Bank of Montreal’s and other banks’ bills.

The first dime (10 coin) was struck in 1858, the first quarter (25 coin) in 1870, and the first Canadian-minted coin was issued in 1908 by the Royal Mint (now Royal Canadian Mint). In 1920, the penny (1) and in 1922, the nickel (5) were introduced into circulation. The first “loonies” ($1) were coined in 1987 to replace the paper dollar, and the “toonie,” a $2 coin, was introduced in 1996 to replace the paper bill. The $1 bill was first issued in 1858, followed by the $2, $50, $500, and $1,000 bills in 1887. The Bank of Canada, established in 1934, continued to print in the same denominations as the Dominion of Canada but introduced a $20 note.

The introduction of polymer banknotes in 2012 and the abolition of the penny in 2013 were the most notable changes to bills and coins in recent years. The Bank of Canada began releasing polymer money in the $100 and $50 denominations in 2011, then the $20 in 2012, and the $5 and $10 in 2013. Polymer money is thought to be a more durable bill with more minor counterfeit hazards.

Fiat Money

In almost every country on the planet, today’s money is fiat. Fiat money is a type of money that [exists] primarily as a result of the government decisions, but it merely means that it has no other function. “Pay to the Bearer on Demand” was written on Canadian bills until 1969, when it was phased out. The “dollar,” today’s money-concept currency-placeholder, is created purely by fiat. It is just a commitment made by all Canadians to each other and to foreigners, imposed on citizens by their elected government, that everyone will accept the currency in exchange for their goods and services.

goods and services


Cryptocurrencies grew in popularity in the years following the global financial crisis of 2008, when public trust in government-backed financial institutions was at an all-time low. Cryptocurrencies are digital or virtual currencies that use encryption to safeguard transactions and regulate unit formation. Examples include bitcoin, ethereum, litecoin, and Zcash. They are deemed “decentralized” since they are not backed by governments or central banking institutions like the Bank of Canada. Cryptocurrencies are unaffected by government monetary policy or legislation and traditional financial institutions’ fees and policies. Instead, they are governed by their encryptions.

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