Characteristics of Money

Over time, therefore, it became clear that for an item to act as money it must possess the following characteristics.

• Acceptability

If money is to be used as medium of exchange for goods and services, then it must be generally accepted as having value in exchange.  This was true of metallic money in the past because it was in high  and stable demand for its ornamental value.  It is true of paper money, due to the good name of the  note-issuing authority.

• Portability

If an item is to be used as money, it must be easily portable, so that it is a convenient means of exchange.

• Scarcity

If money is to be used in exchange for scarce goods and services, then it is important that money is in scarce supply.  For an item to be acceptable as money, it must be scarce.

• Divisibility

It is essential that any asset which is used as money is divisible into small units, so that it can be used in exchange for items of low value.

• Durability

Money has to pass through many different hands during its working life.  Precious metals became popular because they do not deteriorate rapidly in use.  Any asset which is to be used as money must be durable.  It must not depreciate over time so that it can be used as a store of wealth.

• Homogeneity

It is desirable that money should be as uniform as possible.