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Characteristic of Money

Tobe used as money, an item must have certain characteristics. The five major characteristics of money are durability, portability, divisibility, stability in value,and acceptability. Durability. Durability refers to money's ability to be used over and over again. Eggs would be a poor choice for money because they are fragile and perishable.Metals such as gold and silver, however, are ideal because they withstand wear and tearwell. In fact, many coins mintedin ancient times are still in existence.

Portability. Money's ability to be carried from one place to another and transferred from one person to another is its portability. As a medium of exchange, money must be convenient for people to use. Items that are difficult to carry make poor money.

Divisibility. Divisibility refers to money's ability to be divided into smaller units. Combining various coins permits buyers and sellers to make transactions of any size. Divisibility also enhances money's use as a standard of value because exact price comparisons between products can be made.

Stability in value and acceptability. For money to be useful as a store of value, it must be stable in value. Stability in value encourages saving and maintains money's purchasing power. Most people who save money are confident that it will have approximately the same value when they want to buy something with it as it had when they put it into savings.

Acceptability means that people are willing to accept money in exchange for their goods or services. People accept money because they know they, in turn, can spend it for other products.


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MONEY AND THE BANKING SYSTEM | Types of Money

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