Currency describes the form of payment that the members of a society or economy accept generally. It is coinage and notes that are in circulation as a medium of exchange in an economy or society (that the members of a society accept in return for things of real value) (Tucker 373). Modern currency, by its nature, is uniformly worthless in itself. The bills are pieces of paper, rather than things with value in themselves. These pieces of paper become currency based on the general acceptance of members of a society or economy to exchange them as representations of the real value of things.
Currency is important because of the need for a universal store of value that the members of a society could utilize readily in their requirements to obtain things that they do not have and need in their lives. An economy consists of different individuals and firms engaged in the production and consumption of different goods and services. This is because individuals and firms are not self-sufficient. They depend on others to fulfill their needs, with each of them producing one different good or service and providing it to others to produce a system of exchanges based on individual abilities and resources. Without currency, individuals and firms in the society and economy would need to exchange the things that they have or produce with others to obtain those that they need. Nonetheless, such exchange would be inconvenient and impractical because the second individual may not always desire and need the thing that the first has and offers at a particular moment to obtain the thing that he/she desires from the second person. Currency alleviates this problem by providing a universal medium of exchange that is generally acceptable and convenient. It serves as an intermediary instrument to facilitate the purchase, sale, and trade of goods and services among the members of a society (Tucker 373). Currency achieves this objective through its representation of a standard of value for the pricing of services and goods, such that individuals in an economy can compare the values of goods/services and exchange quantities of money that meet the values of those that they desire/need. Currency, as a medium of exchange, enables anyone who owns it to take part in a market or economy as an equal player.
The acceptance of money and determination of its value in the exchange of goods and services occur in terms of its roles as a store of value and unit of account. Currency holds value over time, such that it stores value in terms of remaining valuable in exchange over a period of time. The implication is that the members of a society and economy can save, store, and retrieve money over time. This reliability lies in the predictability of use of currency as a medium of exchange after retrieval. In essence, this role of currency allows individuals to transfer real purchasing power from the present to the future. As a unit of account, money serves as a standard numerical unit to measure the market value of services, goods, and transactions in a market (Arnold 251). It measures the relative worth of goods/services, such that individuals involved in the exchange of goods/services can agree on the right or appropriate quantity of currency to represent their relative estimations of the value of these goods/services.
Arnold, Roger. Macroeconomics. Cengage Learning, 2008.
Tucker, Irvin. Survey of Economics. Cengage Learning, 2008.