12 Characteristics of Money In Economics

You must study Characteristics of Money In Economics.The following are the general qualities or characteristics, which a good money commodity should possess:

12 Characteristics of Money In Economics For Students of Economics.

characteristics of money in economics

  1. Utility and Value:

Since money has to be exchanged for valuable goods, it should itself possess value and it must, therefore, have utility as the basis of value. No one would like to receive a worthless substance. All the different commodities like tobacco, cowry shells, com, iron, copper, gold, and silver possess value and utility. Hence they have been used as money.

  1. Portability:

It means easy to carry or move. Money should have more value but less weight. For example, copper is more portable than iron, gold is more portable than silver and diamond is more portable than gold. For a money commodity, portability is an essential characteristic. Money has to be handled, delivered and transported. If the money commodity is not portable, it will be difficult to send it to long distances and there will be much hindrance in trade and commerce.

  1. Indestructibility:

characteristics of money in economics

A money commodity should not be subject to easy perishability. If it is so, it cannot be preserved. Consequently there will be much hindrance in the growth of capital and wealth. So a good money material should be such that it may not lose its original form and shape due to any mishandling or change in weather conditions.

  1. Homogeneity:

It means that all portions of the substance used as money should be homogeneous, that is, of the same quality so that equal weight will have

exactly the same value. This is an important characteristic of a money commodity. If any commodity lacks homogeneity, it will not be easy to divide and sub-divide it. It tvill also be difficult to value correctly the each portion of the commodity.

  1. Divisibility:

Divisibility not only means that a commodity is capable of being divided and sub-divide but it also means that after division, the commodity should not lose its value and if all the parts of the commodity are put together their value is exactly the same as the value of the whole commodity. Gold and silver are divisible.

  1. Stability of Value:

It is very necessary that the money commodity should not be subject to wide fluctuations in value. If it is so, then people will suffer a great deal. It means the commodity used as money should have the characteristic of stability in value so that people may use it for the settlement of transactions.

  1. Cognizability:

It means the capacity of a substance that it may be easily distinguished from other substance. Money has to pass from hand to hand, so it should be such that it may be easily recognized by anyone. It is not easy to judge whether a particular metal is good or bad unless it is scrutinized, weighed and tested. Cognizability of gold is better than silver, because silver is sometimes confused with lead.

  1. Malleability:

The money material should be malleable. It should be capable of being melted, remolded and given shapes so that it may be stamped. Paper currency is also malleable in a sense that it can recycled to produce new notes.

  1. Elasticity:

A good money is that which possess the quality of elasticity. So money should be such which can be expanded or contracted according to the needs of nation and requirements of the economy.

  1. Economy:

The issuances of good money should always be economical. There should be no unnecessary expenditure on its use. It must be cheap according to the requirements of people.

  1. Scarcity:

Scarcity is one of the essential features of good money. One can get it after efficient work and reasonable effort or struggle. To maintain 01 stabilize the value and to build the confidence of the people, money in circulation should be limited. The importance of money is realized when demand is more and it is less in supply.

  1. Government Support:

A good money material must be supported or backed by the government. The people accept even fiat money (money issued without keeping any metallic reserve) due to government support. The government’s backing to money creates a sense of confidence.

by Abdullah Sam
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