The Basics of Money

Money is basically anything that is generally accepted as a medium of exchange in the society. Money basically makes the rotation of the earth. Whilst it is generally used all around few misconceptions about it would be inevitable.

In eons, barter trade was basically the only means of survival and many lads and lasses were in the habit of exchanging goods and services for other goods and services. This, however, had several hindrances which included the lack of store of value as most goods were perishable, most commodities were of less value, and were not acceptable.

What You Need to know

The money came as a great relief to many because it is a means of payment; it is a store of value; money can be used as a mode of transferring immovable assets and property; it also is a measure of value and an amazing medium of exchange.
There are basically two types of money which include: Fiat money- this refers to money that has no intrinsic value and inconvertible to a valuable commodity on demand. Its value depends upon actions of the issuer and the policies laid out by the same issuer. It doesn’t mainly lose its value in the market because it is used by the government as a means of tax payment as well as legal tender.

Commodity money- Be it as it may, this is a commonly used kind of money, ratio .since it is convertible to a valuable commodity on demand without the loss of its value. It can be either be tangible (notes and coins) or intangible( bank deposits). This necessarily doesn’t require on to hold a supply of the commodity underlying.

In order for a commercial bank to lend out money it is required by central bank equity cratio.this is one of the ways monetary policy is used to limit the bank lending commitment, and increases or decreases money demand as this eventuality may result to a bank shutting down its operations. In order to cover liquidity problems which are basically temporal, the bank needs to meet a certain base rate that dictates the rate of interest to it’s the best client and in most instances the minimum interest rate issued by the commercial bank by the central bank. This, in turn, depicts the minimum amount of money a bank can borrow.

In order to control the supply of money in circulation at a time in the economy, various steps are taken. Open market operations is one of this strongest methods since it drains or increases the reserves in the system by issuing bonds publicly or withholding them. An exercise carried out by the government. The other being the reserve ratio requirements. This is the percentage of total deposits a commercial bank is required to hold in its vaults or with the central bank.