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Value Of Money Essay

1630 Words7 Pages

People spend money every day and it is a big part of our lives. It is one of the most important inventions of all time and therefore something that is a matter of course. Money is necessary for the development of trade and help us people to trade goods and services indirectly. It has developed from bartering to commodity money, further to representative money, and nowadays all money is fiat money. Today the most used money is digital money. Money gives us the opportunity to understand the price of different goods, and to save purchases to the future. (Investopedia, 2017) In this assignment, the history of money will be discussed. Moreover, the different types of money that has existed and how money has developed over time. Accordingly, the advantages and disadvantages are going to be brought up of every type. A term that will be used when analyzing the change in …show more content…

Today most of the currencies are fiat money, and are established as a legal tender. The difference between representative money and fiat money is that the fiat money is given value by a government decree or fiat. The value of money is determined by supply and demand and people’s faith in its worth. The money receives its value because the government says it has value. The risks with fiat money, is that there is nothing backing up the value, so it can easily lead to inflation. This means if people lose the faith in the currency, for example the US dollar, the money will lose its value. The money is not linked to any physical reserve as it was with representative money. The advantages of fiat money is/are its stability of its value. The central banks can control the money supply by holding or printing paper money, because they control money supply, liquidity and interest rates. Although fiat money is considered as a very stable currency, and can fight against recession, some crisis has still occurred. (Herold’s Financial Dictionary, 2017; CFI,

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