Information about Medium Of Exchange
A medium of exchange is an intermediary used in trade to avoid the inconveniences of a pure barter system.
In a barter system, there must be a coincidence of wants before two people can trade - they must want exactly what the other has to offer, when and where it is offered, so that the exchange can occur. A medium of exchange permits the value of a good to be assessed and rendered in terms of the intermediary, most often, a form of money widely accepted to buy any other good.
To serve as a medium of exchange, a good or signal need not have any inherent value of its own, that is, it need not be effective as a store of value in itself. Paper money is a useful medium of exchange in part because it has no such value, thus, it cannot lose that value if damaged, and so damaged paper money is easily replaced. Gold was long popular as a medium of exchange and store of value because it was convenient to move large quantities and was inert, and so would not tarnish or lose weight or value.
Although the unit of account must be in some way related to the medium of exchange in use, e.g. coinage should be in denominations of that unit making accounting much easier to perform, it has often been the case that media of exchange have no natural relationship to that unit, and must be 'minted' or in some way marked as having that value. Also there may be variances in quality of the underlying good which may not have fully agreed commodity grading. The difference between the two functions becomes obvious when one considers the fact that coins were very often 'shaved', precious metal removed from them, leaving them still useful as an identifiable coin in the marketplace, for a certain number of units in trade, but which no longer had the quantity of metal supplied by the coin's minter. It was observed as early as Oresme, Copernicus and then in 1558 by Sir Thomas Gresham, that bad money drives out good in any marketplace (Gresham's Law states "Where legal tender laws exist, bad money drives out good money"). A more precise definition is this: "A currency that is artificially overvalued by law will drive out of circulation a currency that is artificially undervalued by that law." Gresham's law is therefore a specific application of the general law of price controls. A common explanation is that people will always keep the less adultered, less clipped, sweated, less filed, less trimmed coin, and offer the other in the marketplace for the full units for which it is marked. It is inevitably the bad coins proffered, good ones retained.
The fact that a bank or mint has always been able to generate a medium of exchange marked for more units than it is worth as a store of value, is the basis of banking. Central banking is based on the principle that no medium needs more than the guarantee of the state that it can be redeemed for payment of debt as "legal tender" - thus, all money equally backed by the state is good money, within that state. As long as that state produces anything of value to others, its medium of exchange has some value, and its currency may also be useful as a standard of deferred payment among others, even those who never deal with that state directly in foreign exchange.
Of all functions of money, the medium of exchange function has historically been the most problematic because of counterfeiting, the systematic and deliberate creation of bad money with no authorization to do so, leading to the driving out of the good money entirely.
Other functions rely not on recognition of some token or weight of metal in a marketplace, where time to detect any counterfeit is limited and benefits for successful passing-off are high, but on more stable long term social contracts: one cannot easily force a whole society to accept a different standard of deferred payment, require even small groups of people to uphold a floor price for a store of value, still less to re-price everything and rewrite all accounts to a unit of account (the most stable function). Thus it tends to be the medium of exchange function that constrains what can be used as a form of financial capital.
It was once common in the United States to widely accept a check as a medium of exchange, several parties endorsing it perhaps multiple times before it would eventually be deposited for its value in units of account, and thus redeemed. This practice became less common as it was exploited by forgers and led to a domino effect of bounced checks - a forerunner of the kind of fragility that electronic systems would eventually bring:
In the age of electronic money it was, and remains, common to use very long strings of difficult-to-reproduce numbers, generated by encryption methods, to authenticate transactions and commitments as having come from trusted parties. Thus the medium of exchange function has become wholly a part of the marketplace and its signals, and is utterly integrated with the unit of account function, so that, given the integrity of the public key system on which these are based, they become to that degree inseparable. This has clear advantages - counterfeiting is difficult or impossible unless the whole system is compromised, say by a new factoring algorithm. But at that point, the entire system is broken and the whole infrastructure is obsolete - new keys must be re-generated and the new system will also depend on some assumptions about difficulty of factoring.
Due to this inherent fragility, which is even more profound with electronic voting, some economists argue that units of account should not ever be abstracted or confused with the nominal units or tokens used in exchange. A medium is just that, a medium, and should not be confused for the message.
..... Click the link for more information.
Economic policy
Monetary policy
Central bank Money supply
Fiscal policy
Spending Deficit Debt
Trade policy
Tariff Trade agreement
Finance
Financial market
..... Click the link for more information.
A counterfeit is an imitation that is made usually with the intent to deceptively represent its content or origins.
..... Click the link for more information.
In a barter system, there must be a coincidence of wants before two people can trade - they must want exactly what the other has to offer, when and where it is offered, so that the exchange can occur. A medium of exchange permits the value of a good to be assessed and rendered in terms of the intermediary, most often, a form of money widely accepted to buy any other good.
Definition
A good definition of money is this: the most marketable commodity. To be widely marketable, a medium of exchange should possess the following characteristics:- transportability
- divisibility
- high market value in relation to volume and weight
- recognizability
- resistance to counterfeiting
To serve as a medium of exchange, a good or signal need not have any inherent value of its own, that is, it need not be effective as a store of value in itself. Paper money is a useful medium of exchange in part because it has no such value, thus, it cannot lose that value if damaged, and so damaged paper money is easily replaced. Gold was long popular as a medium of exchange and store of value because it was convenient to move large quantities and was inert, and so would not tarnish or lose weight or value.
From barter to exchange
A longer term obligation need not be measured in the same terms as the immediate medium is, that is, the medium need not be a standard of deferred payment. Many currencies in periods of high inflation have become unacceptable as denominations of debt - creditors demand contracts that specify payments in some stable currency such as the US dollar, or a quantity of gold or food perhaps, but continue to use the unstable local currency as the daily medium of exchange. The standard of deferred payment tends to trade at a premium in such circumstances, and some goods are not available to those who deal in the medium of exchange currency only.Although the unit of account must be in some way related to the medium of exchange in use, e.g. coinage should be in denominations of that unit making accounting much easier to perform, it has often been the case that media of exchange have no natural relationship to that unit, and must be 'minted' or in some way marked as having that value. Also there may be variances in quality of the underlying good which may not have fully agreed commodity grading. The difference between the two functions becomes obvious when one considers the fact that coins were very often 'shaved', precious metal removed from them, leaving them still useful as an identifiable coin in the marketplace, for a certain number of units in trade, but which no longer had the quantity of metal supplied by the coin's minter. It was observed as early as Oresme, Copernicus and then in 1558 by Sir Thomas Gresham, that bad money drives out good in any marketplace (Gresham's Law states "Where legal tender laws exist, bad money drives out good money"). A more precise definition is this: "A currency that is artificially overvalued by law will drive out of circulation a currency that is artificially undervalued by that law." Gresham's law is therefore a specific application of the general law of price controls. A common explanation is that people will always keep the less adultered, less clipped, sweated, less filed, less trimmed coin, and offer the other in the marketplace for the full units for which it is marked. It is inevitably the bad coins proffered, good ones retained.
The fact that a bank or mint has always been able to generate a medium of exchange marked for more units than it is worth as a store of value, is the basis of banking. Central banking is based on the principle that no medium needs more than the guarantee of the state that it can be redeemed for payment of debt as "legal tender" - thus, all money equally backed by the state is good money, within that state. As long as that state produces anything of value to others, its medium of exchange has some value, and its currency may also be useful as a standard of deferred payment among others, even those who never deal with that state directly in foreign exchange.
Of all functions of money, the medium of exchange function has historically been the most problematic because of counterfeiting, the systematic and deliberate creation of bad money with no authorization to do so, leading to the driving out of the good money entirely.
Other functions rely not on recognition of some token or weight of metal in a marketplace, where time to detect any counterfeit is limited and benefits for successful passing-off are high, but on more stable long term social contracts: one cannot easily force a whole society to accept a different standard of deferred payment, require even small groups of people to uphold a floor price for a store of value, still less to re-price everything and rewrite all accounts to a unit of account (the most stable function). Thus it tends to be the medium of exchange function that constrains what can be used as a form of financial capital.
It was once common in the United States to widely accept a check as a medium of exchange, several parties endorsing it perhaps multiple times before it would eventually be deposited for its value in units of account, and thus redeemed. This practice became less common as it was exploited by forgers and led to a domino effect of bounced checks - a forerunner of the kind of fragility that electronic systems would eventually bring:
In the age of electronic money it was, and remains, common to use very long strings of difficult-to-reproduce numbers, generated by encryption methods, to authenticate transactions and commitments as having come from trusted parties. Thus the medium of exchange function has become wholly a part of the marketplace and its signals, and is utterly integrated with the unit of account function, so that, given the integrity of the public key system on which these are based, they become to that degree inseparable. This has clear advantages - counterfeiting is difficult or impossible unless the whole system is compromised, say by a new factoring algorithm. But at that point, the entire system is broken and the whole infrastructure is obsolete - new keys must be re-generated and the new system will also depend on some assumptions about difficulty of factoring.
Due to this inherent fragility, which is even more profound with electronic voting, some economists argue that units of account should not ever be abstracted or confused with the nominal units or tokens used in exchange. A medium is just that, a medium, and should not be confused for the message.
Bibliography
- Jones, Robert A. "The Origin and Development of Media of Exchange." Journal of Political Economy 84 (Nov. 1976): 757-775.
- Kiyotaki, N. and Wright, R. (1989). On money as a medium of exchange, J. Politic. Econ., 97, pp. 927-954
- Kiyotaki, N. and Wright, R. (1991). A contribution to the pure theory of money, J. Econ. Theory 53, pp. 215-235
- Radford, R. A. "Money in a Prisoner-of-War Camp." In Prager, Jonas, ed. Monetary Economics: Controversies in Theory and Policy. New York: Random House, 1971: 6-8.
See also
External links
- Linguistic and Commodity Exchanges-Examines the structural differences between barter and monetary commodity exchanges and oral and written linguistic exchanges.
Trade is the voluntary exchange of goods, services, or both. Trade is also called commerce. A mechanism that allows trade is called a market. The original form of trade was barter, the direct exchange of goods and services.
..... Click the link for more information.
..... Click the link for more information.
Barter is a type of trade that doesn't use any medium of exchange, in which goods or services are exchanged for other goods and/or services. It can be bilateral or multilateral as trade.
Barter and money are different means of balancing an economic exchange.
..... Click the link for more information.
Barter and money are different means of balancing an economic exchange.
..... Click the link for more information.
coincidence of wants problem (often "double coincidence of wants") is an important category of transaction costs that impose severe limitations on economies lacking money and thus dominated by barter or other in-kind transactions.
..... Click the link for more information.
..... Click the link for more information.
Money is any token or other object that functions as a medium of exchange that is socially and legally accepted in payment for goods and services and in settlement of debts.
..... Click the link for more information.
..... Click the link for more information.
To act as a store of value, a commodity, a form of money, or financial capital must be able to be reliably saved, stored, and retrieved - and be predictably useful when it is so retrieved.
..... Click the link for more information.
..... Click the link for more information.
In English, to be inert is to be in a state of doing little or nothing.
In chemistry, the term inert is used to describe something that is not chemically active. The noble gases were described as being inert because they did not react with the other elements or themselves.
..... Click the link for more information.
In chemistry, the term inert is used to describe something that is not chemically active. The noble gases were described as being inert because they did not react with the other elements or themselves.
..... Click the link for more information.
A standard of deferred payment is the accepted way (in a given market) to settle a debt. For example, while the gold standard reigned, gold or any currency convertible to gold at a fixed rate constituted such a standard.
..... Click the link for more information.
..... Click the link for more information.
Inflation is measured as the growth of the money supply in an economy, without a commensurate increase in the supply of goods and services. This results in a rise in the general price level as measured against a standard level of purchasing power.
..... Click the link for more information.
..... Click the link for more information.
Debt is that which is owed; usually referencing assets owed, but the term can cover other obligations. In the case of assets, debt is a means of using future purchasing power in the present before a summation has been earned.
..... Click the link for more information.
..... Click the link for more information.
United States dollar
dólar estadounidense (Spanish)
dólar amerikanu (Tetum)
dólar americano
..... Click the link for more information.
dólar estadounidense (Spanish)
dólar amerikanu (Tetum)
dólar americano
..... Click the link for more information.
GOLD refers to one of the following:
..... Click the link for more information.
- GOLD (IEEE) is an IEEE program designed to garner more student members at the university level (Graduates of the Last Decade).
- GOLD (parser) is an open source BNF parser.
..... Click the link for more information.
Food is any substance, usually composed primarily of carbohydrates, fats, water and/or proteins, that can be eaten or drunk by an animal or human being for nutrition or pleasure.
..... Click the link for more information.
..... Click the link for more information.
A unit of account is a standard monetary unit of measurement of the market value/cost of goods, services, or assets. It is one of three well-known functions of money. It lends meaning to profits, losses, liability, or assets.
..... Click the link for more information.
..... Click the link for more information.
currency is a unit of exchange, facilitating the transfer of goods and/or services. It is one form of money, where money is anything that serves as a medium of exchange, a store of value, and a standard of value. A currency is the dominant medium of exchange.
..... Click the link for more information.
..... Click the link for more information.
Accountancy (profession) or accounting (methodology) is the measurement, statement or provision of assurance about financial information primarily used by managers, investors, tax authorities and other decision makers to make resource allocation decisions within companies,
..... Click the link for more information.
..... Click the link for more information.
For the Marxist definition of a commodity, see .
A commodity is something for which there is demand, but which is supplied without qualitative differentiation across a given market...... Click the link for more information.
Nicole Oresme, also known as Nicolas Oresme, Nicholas Oresme, or Nicolas d'Oresme (c. 1323 - July 11, 1382) was one of the most famous and influential philosophers of the later Middle Ages.
..... Click the link for more information.
..... Click the link for more information.
This page is currently protected from editing until disputes have been resolved.
Protection is not an endorsement of the current [ version] ([ protection log]).
..... Click the link for more information.
Protection is not an endorsement of the current [ version] ([ protection log]).
..... Click the link for more information.
Sir Thomas Gresham (c. 1519 - 21 November, 1579) was an English merchant and financier who worked for King Edward VI of England and for Edward's half-sister Queen Elizabeth I of England.
..... Click the link for more information.
..... Click the link for more information.
Gresham's law is commonly stated as: "When there is a legal tender currency, bad money drives good money out of circulation." Or, more accurately, "Money overvalued by the State will drive money undervalued by the State out of circulation.
..... Click the link for more information.
..... Click the link for more information.
bank is a commercial or state institution that provides financial services , including issuing money in various forms, receiving deposits of money, lending money and processing transactions and the creating of credit.
..... Click the link for more information.
..... Click the link for more information.
"Mints" redirects here. For other uses, see Mint (disambiguation).
A mint is a place or facility which manufactures coins for currency.
On the whole, the history of mints correlates very closely with the history of coins.
..... Click the link for more information.
A mint is a place or facility which manufactures coins for currency.
On the whole, the history of mints correlates very closely with the history of coins.
..... Click the link for more information.
bank is a commercial or state institution that provides financial services , including issuing money in various forms, receiving deposits of money, lending money and processing transactions and the creating of credit.
..... Click the link for more information.
..... Click the link for more information.
Economic policy
Monetary policy
Central bank Money supply
Fiscal policy
Spending Deficit Debt
Trade policy
Tariff Trade agreement
Finance
Financial market
..... Click the link for more information.
Debt is that which is owed; usually referencing assets owed, but the term can cover other obligations. In the case of assets, debt is a means of using future purchasing power in the present before a summation has been earned.
..... Click the link for more information.
..... Click the link for more information.
Legal tender or forced tender is payment that, by law, cannot be refused in settlement of a debt denominated in the same currency.
Legal tender is a status which may be conferred on certain examples of money, which may depend on circumstances including the amount of
..... Click the link for more information.
Legal tender is a status which may be conferred on certain examples of money, which may depend on circumstances including the amount of
..... Click the link for more information.
In general, the economic value of something is how much a product or service is worth to someone relative to other things (often measured in money).
It can be either an assessment of what it could or should be the price (valuation), or an explanation
..... Click the link for more information.
It can be either an assessment of what it could or should be the price (valuation), or an explanation
..... Click the link for more information.
worldwide view of the subject.
Please [ improve this article] or discuss the issue on the talk page.
Please [ improve this article] or discuss the issue on the talk page.
A counterfeit is an imitation that is made usually with the intent to deceptively represent its content or origins.
..... Click the link for more information.
social contract describes a broad class of philosophical theories whose subjects are the implied agreements by which people form nations and maintain a social order. In laymen's terms, this means that the people give up some rights to a government in order to receive social order.
..... Click the link for more information.
..... Click the link for more information.
Financial Capital vs. Real Capital
Financial capital refers to the funds provided by lenders (and investors) to businesses to purchase real capital like equipment for producing goods/services.
..... Click the link for more information.
Financial capital refers to the funds provided by lenders (and investors) to businesses to purchase real capital like equipment for producing goods/services.
..... Click the link for more information.
This article is copied from an article on Wikipedia.org - the free encyclopedia created and edited by online user community. The text was not checked or edited by anyone on our staff. Although the vast majority of the wikipedia encyclopedia articles provide accurate and timely information please do not assume the accuracy of any particular article. This article is distributed under the terms of GNU Free Documentation License.
Herod_Archelaus
