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What Is Money? The value of money | Trading Cocktail

What Is Money?

What Is Money? Actually, nobody care with this super basic question. As long as they have it. But try to think about this, no matter what your believe is, your ideology, your morals, or any other concept you believe to be the truth, you know this piece of paper has value.

Taking an extreme example, no matter how difference the believe of a Taliban member and U.S. citizen, these guy both know and agree that a piece of paper with the picture of Benjamin Franklin and  the ‘100’ number printed is worth something and it has value. Both of  them may not know whose the guy with a long hair and big forehead is. Or the Taliban guy might demonizing and hate all about USA, but when he get this so called ‘meaningless paper’ with the picture of a guy they never know, he wont burn or destroy it. He’ll keep it. Interesting, isn’t it?





That’s because perception as the basic foundation of market economy.

The most fundamental element on commodities value. So any abstract concept or tangible things could has value as long as the economy participants know and believe it has a value. Try to explain the $100 paper to some remote indigenous community in deep tropical forest which never integrated to the world economy, they wont accept or believe that some weird meaningless paper is worth a value.

 

What Is Money? The value of money | Trading Cocktail

 

Trade in commodities and services rather than money is responsible for keeping the world afloat, contrary to what many people believe that money keep the world round. However, without money, commerce would be a very tough endeavor. It’s hard to imagine trying to convey strawberries to France and waiting for payment until the next cheese shipment arrives. As another example, consider if you had an abundance of bananas one year and tried to store them for later shipment. How many bananas does a piece of cheese have?

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These problems can be solved by using something that has value. Call it money. People don’t care what they’re called. As a medium of exchange, they allow strawberries to be sold for money instead of cheese; they allow value to be stored from year to year, because currencies don’t rot. They also serve as a unit of account, telling us how much strawberries are worth in something that everyone can understand.

Shells and beads, the first forms of money, served the same purpose that paper, credit cards, and electronic transactions do today. Money makes trading easier to manage. When a product is sold for money, the proceeds can be utilized to purchase additional things. Money works as a go-between for all transactions of commodities and services that comprise the global economy by functioning as a medium of exchange.

By using money to store value, a producer can avoid a warehouse full of rotting goods. After selling a product for money, a producer can sit back and wait for the best time to purchase other goods and services. During this time, the money can be put under a mattress or it can be invested to earn interest. This allows the stored money to keep pace with inflation-or even outpace it.

Finally, by employing money as a unit of account, goods and services may be appraised using a standardized unit of measurement. Money tells us not only how many strawberries a piece of cheese is worth, but also how many apples it takes to purchase an airline ticket or how many hamburgers it takes to purchase a haircut. Money enables all commodities and services to be expressed in terms of a common unit, making global trade enormously easier.

About Trading Cocktail

The team consists of Marco, Fundamental, and Technical Analyst.
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