What is Money: Definition and Differences with Currency

In economics, money is a tool that can be accepted by the general public as a medium of exchange or legal tender in economic activity.

However, there are others who say that money is an object that is accepted by many people to be able to measure value, be used as a medium of exchange or as a tool for purchasing goods or services whose form of presence has been approved by certain regulations.

In a modern economic activity, besides being used as a means of payment in buying and selling activities, money is also used as a tool to pay debts. However, most people still don’t know the difference between money and currency itself.

Well, on this occasion, let’s discuss more deeply about money and what are the differences between it and currency.

What is Money

Reporting from the official Wikipedia page, money is a generally accepted medium of exchange. This medium of exchange can be in the form of objects or anything that can be accepted by every individual in society to process the exchange of goods or services.

If in pre-modern society the payment system was done by barter, then in modern society this activity is carried out using money. Besides being easier to use, money also has a clearer reference level.

In the barter system, there will generally be confusion about how, for example, to exchange a sack of rice, whether it is the same value as a piece of cloth or not. For this reason, money is used as a means of payment because it has a certain reference level.

• For that, the ideal conditions for money are as follows.
• Money can be accepted by the general public.
• Money must be durable and long-lasting. So, money must have a permanent physical condition even though it is stored for a long time.
• The value contained in money must be stable even though it is stored for years.
• Money should be easy to store and carry around.
• Money must be able to be broken down into smaller fractions in order to facilitate the payment process or transaction of buying and selling goods or services.
• The circulation of money must be limited so that its value remains high
• Money must be recognizable by all people in the world.
• Money must have a clear value.

Functions of Money other than Transaction Tools

In modern economics, it is explained that money is used as a means of payment that must be generally accepted to carry out activities of buying and selling goods or services, accumulating wealth, or paying debts. In addition, there are other functions of money, namely:

• Unit of Account

One of the other functions of money is as a unit of account. If a unit of account is not found, it will be difficult to assess the price of goods or services. What’s more, the value of goods and services varies widely. With a clear unit of account, it will be easier for everyone to estimate the estimated goods or services, so that everyone can pay a certain amount of money to buy goods or services.

• Declaring Price

Most of us must have always asked the price of an item or service before buying it. In this case, money can be used as a tool to state the price of goods or services. Because it has this function, you can do careful consideration before buying something.

• Payment Instrument

The next function of money is as a means of payment. You can buy whatever goods or services you need as long as you have the money. Therefore, many people think that money is everything.

In a modern era like today, you will find it difficult to meet various needs every day without something. Even though money can’t buy everything, you still need money to finance your daily needs.

• Supporting Economic and Social Activities

Because money is considered capable of supporting every economic and social activity of each individual, nowadays many people are increasingly motivated to be able to make money in the right way, for example by doing various jobs or by selling.

In this case, we can see that money is the main need in human life. In this world, to survive, money is needed, so it takes hard work to get it.

By doing work and having an income, your daily needs will be easier and lighter. Conversely, if a person does not have a job and has no income, financial problems will arise in his personal life, including in terms of running a household.

• Acts as a Debt Payment Tool

The next important function of money is to play an important role as a means of paying debts. In this case, money has a function in determining the value of obligations that must be paid in relation to debt. For example, if you need money to buy food, and owe it to a friend and promise to return it on credit or in installments, then the installment or credit is included as a debt.

• As a Hoarding Tool for Wealth

Money also plays an important role in the wealth of a company or person, especially in terms of how strong the financial capabilities are. For this reason, in this case, money has a function as a means of hoarding wealth.

The amount of money you have in a savings account will describe how much wealth you currently have. The more money you have in a savings account, the richer you will appear. Later, the amount of money can be converted into an asset or other valuable assets.

• As a Wealth Transfer Tool

If we talk about wealth, money has an important role as a means of transferring wealth. In this case, the function of money refers to a valuable object owned by money as an intermediary.

That is, if a person has a large amount of money, then that person can transfer his wealth into other forms, such as land, houses, vehicles, livestock, etc. which is of value.

So what’s the difference with currency?

Currency is a unit of value for money that has been approved by the government in a country. A country has its own currency. Although there are several countries that have the same type of currency, such as America, Ecuador, Cambodia, Panama, and the British Indian Ocean Region. While examples of countries that have different currencies are the Rupiah for Indonesia and the Yen for Japan.

Currency Function

In general, the function of currency itself is the same as money in general, namely as a medium of exchange. The difference lies in the value. Each currency has its own exchange rate. For example, if 1 US Dollar has a value of Rs. 14,000 in rupees.

This difference is caused by various factors. This difference in currency values ​​is usually referred to as the exchange rate. So, each currency has its own exchange rate, and its value keeps changing every day.

Factors that Determine Exchange Rates

• Inflation Rate. A country that has a high level of prosperity generally has a low inflation rate. Thus, the exchange rate of money in it becomes stronger.
• Interest Rate. Interest rates will also be related to inflation. The government in a country will increase interest rates when there is inflation, so investors will mostly be interested in investing in that country. Thus, currency exchange rates will tend to be stable.
• Trade Balance. This balance is made based on the results of exports and imports in a country. A country that has more income than its partner country will make its currency strong.
• Public Debt. Debt owned by the public can also determine the value of the country’s currency. A country that has a high level of debt will also weaken its currency.
• Export-Import. If the export activity of a country is greater than its import activity, it is certain that the currency value of that country will be strong.
• Economic and Political Conditions. The political and economic situation in a country will affect the exchange rate of the country’s currency. This will relate to investors who want to invest. Every foreign investor will generally prefer a country that has stable economic and political conditions.
• Government Control. Policies made by the government can also determine the exchange rate of the country’s currency.