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Jrd · 2023-11-12T00:11:57Z

What is money? What are the characteristics of money? What are the types of money? How can this knowledge make us handle money better and become more financially literate? Let's see.Fact be stated, money is so important in our lives, yet people spend little or no time actually talking about it. What if we are doing many things wrong? What if accurate knowledge about money could help us improve? What if good money knowledge will save us many stress? What if the understanding of how money really works can show that we have been doing many things wrong all along? What if we realise along the line that we don't need to work such long hours to make a living? Sadly, all the above could be true, because knowledge is power, especially when that knowledge is applied appropriately. This is the objectors of Azà Hub- to sensitize our readers about understanding money, how it works, and the knowledge can help better our lives.WHAT IS MONEY?When you ask a layman that question, mind quickly goes to the currency notes he's holding or in his pocket. Is that all about money?Money is defined simply a medium of exchange that is being used to purchase goods and services. It is also regarded by its ability to act as a store of value.Got it? 2 things define money: A medium of exchange, and ability to act as store of value.Anything in your possession that can perform those 2 roles is what? MONEY!WHAT CHARACTERISES MONEY?I mean what are the characteristics of money? There are 3 major characteristics of money, and please note that these characteristics are what determine its value. They are:1. Its Legal Status: – This is implied by if a society has recognised and accepted the asset as having monetary value2. Its Accepted Value: – That is if it is widely agreed upon that this asset has a standardised price that can be exchanged for other goods and services3. Its Scarcity: – That is if supply is controlled and regulated, and its demand monitored.Anything regarded as money must have in one way or the other the above 3 characteristics. This is not limited to paper money, as we shall see shortly.TYPES OF MONEYNow let's talk about types of money that exist. There are 4 major types, for the sake of this discussion, of money that there is. And they ate: fiat, commodity, fiduciary and commercial bank money.Lets take them one after another so as to explain what they mean, hoping this know can help us handle that paper in our pocket better.1. FIAT MONEYFiat, derived from the Latin word fiat, meaning 'backed by Authority.' Fiat money translates to the notes and coins backed by a government, or authority of the land, so to say. Examples are the Nigerian Naira, Ghana Cedis, US Dollars, British Pounds and Chinese Yuan.Critical knowledge: it is important to note that fiat money is a currency that is not backed by a commodity or physical good, but rather the value is determined by strength of the issuing body. The value of fiat money comes from market supply and demand, which usually fluctuates in line with the perceived health of the economy, ultimately determinable by the authority behind it. For example, the Nigerian Naira exchanges official to the US Dollar today at N805 to Dollar. This is determined by 1. The backing authority, Federal Government and CBN, and 2. The perceived health of the Nigerian economy. Take a look at how the Nigerian Naira is currently fairing, as compared with other common currencies even in Africa, using the US Dollar as yardstick: Most countries and governments use fiat money systems. This system allows them to create economic policies that – alongside central banks – influence the money supply, hence be in control of the economy, hence people's economic status. Fiat money underpins most modern monetary systems, which is why the terms ‘currencies’ and ‘money’ are used synonymously. Most of the other systems derive their value from a comparison with fiat currency as baseline.Fiat money is commonly regarded as LEGAL TENDER and has a floating value, which is determined by the strength of one currency against another in the open market. Fiat money is traded in what’s known as the FOREX (foreign exchange) market, or forex market.See Exchange rates in mage above.2. COMMODITY MONEYThis refers to a good that has agreed value. For example Gold. In history, the gold has been adopted as standard of reference for some time. Commodity money is a physical asset that has an intrinsic value. This system is associated with trade by barter, where there is no standardised or agreed-upon medium of exchange. Commodity money is widely used to refer to precious metals, such as gold, which historically backed most global currencies. But in some societies, grains and coffee have also been used.The Gold Standard ExampleA common example of commodity money is the gold standard, which was a monetary system that pegged the value of a country’s currency to a specific amount of gold. It was originally set out to stabilise the prices of global currenci...

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[Sticky] Understanding Money, it's characteristics and types: Why?

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Acidic01

Jul 24, 2025 2:58 am

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Thanks for sharing this

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