Money and central banking

Money is one of the man’s greatest inventions, an essential tool of civilization, because every society has a money economy based on coins and paper notes. In primitive society there was a barter system which is the direct exchange of goods and services for goods and services. As the extent of specialization increases, the barter system proves very inefficient. The great disadvantage of barter is the fact that it depends upon a “double coincidence of wants”. It means that the seller and the buyer each must want something the other has to offer. Each person is simultaneously a seller and a buyer. A hunter who wants to exchange his skins for corn must find, not merely a person who wants skins, but someone who wants skin and has surplus of corn for disposal. Trading is very expensive in a barter economy. Time and energy, which could be devoted to production, is spent to laborious system of exchange.
Quite early in his history man discovered a much more convenient arrangement. The use of some commodity as a medium of exchange makes exchange triangular and removes the major difficulty of the barter system. If the commodity is generally acceptable in exchange for goods and services, it is money. A producer now exchanges his goods for money and the money can be exchanged for whatever goods and services he requires.
- Money as a medium of exchange.
- Money as a standard of value.
- Money as a store of value.
- Money as a standard of deferred payment.
Money, the medium of exchange, is used in one-half of almost all exchange. Workers exchange labor services for money. People buy and sell goods in exchange for money.
Money can also serve as a standard of value. Society considers it convenient to use a monetary unit to determine relative costs of...

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