9.4.1—Money functions and characteristics

Money performs four functions: medium of exchange, unit of account, store of value and standard of deferred payment. Good money is durable, portable, divisible, recognisable and scarce enough to retain confidence.

Using money avoids the double coincidence of wants required by barter and provides a common way to compare prices. Inflation weakens its store-of-value function; instability weakens willingness to accept it.

A phone payment lets a seller accept value without wanting the buyer’s particular goods, and the price label provides a unit of account for comparing alternatives.

Money is not identical to income or wealth, and an asset is not automatically money unless it is readily accepted for transactions.