Money as a Medium of Exchange

A medium of exchange is an intermediary instrument used to facilitate sale, purchase and trade if goods among different parties. In modern times, money is a medium of exchange used in the form of coins and banknotes. As the bartering of goods, i.e. exchanging goods against goods is time consuming, confusing and tiring, hence this problem lead to the emergence of money as a medium of exchange.

Anthropologists say that it was due to the drawbacks of barter system that money emerged, however there is lack of supporting historic evidence for the same that proves it. In the earlier times, things with the maximum utility, demand, uses and high marketability were given the highest values in terms of their exchange. Therefore, in ancient times, in agrarian societies, cereals and cattle were used as the most popular mediums of exchange. Another opinion in the view of creation of money is that when the inhabitants of one country became dependent on those of another country, and they had to import the goods and services of use to them, money had to come into use.

Money counts to be one of the most important creations/inventions of the financial world, as without money, only barter system would have been existent where trade takes place only when one person can offer to another what he has and in return gets what he wants, which is quite a difficult condition to fulfil. Money, on the other hand is an efficient medium of exchange as it acts as in intermediary substance enabling a buyer to choose freely as to from where to buy. The earliest currency used in commercial transactions consists of gold bars. Later, gold rings and other trinkets came into use for making payments of smaller sums.

Hence, one can conclude by mentioning that money gives us the freedom of making choices, as it enables us to decide as to where we want to spend it, how we want to live our life, and how we can fulfil our materialistic desires. On the other hand, in the absence of money, we can not afford to make choices as per our conveniences.

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