Money & Currency

Before money was invented, trade was done by Barter. An example of "Barter Trade" is where 1 goat is exchanged for 6 chickens; or 1 coconut is exchanged for 5 bananas; or 1 haircut is exchanged for 4 eggs. This is the simplest form of trade.

Barter Trade has 2 main drawbacks; inconvenience and indivisibility.

Inconvenience - The place and time for the exchange may be limited and not ideal. As a trader, you have to go to a marketplace at a certain time. There, the trade item you want might not be available. Also, your item to be traded may not wanted there and then. 

Indivisibility - Trade is limited to "whole number" exchanges. Let's say there is an agreed exchange "price" of 2 live ducks for 3 live chickens. Today you brought 1 duck. The other trader can give you 1 chicken but not the half chicken.

Money has 4 functions:-

1. Medium - a medium of Exchange.

2. Measure - a measure of Value (or account).

3. Standard - a standard of Value (or deferred payment).

4. Store - a store of Value (or wealth).

Currency is a system of money (or monetary units) which is specific to a country.

In general, Currencies are meant to be Money but most currencies would not qualify as a Store of Value due to Inflation.

Inflation is the rate of increases in Prices over time.

With Inflation, an amount of Currency would be able to buy less in the future. So with high Inflation, the stored value of a Currency would diminish rapidly over time.