FLOW OF MONEY IS INPORTANTT

THE FLOW OF MONEY IS IMPORTANT In old times, money was the only source of dealing. In some places in the world, it is also used now. It is a system of dealing in which it is exchanged in taking and giving currency. It provides the facility of goods and services in running the economy. The use of money allows the buyers and sellers to run their deals in low price in the comparison of barter trading. The first type of money was in the form of commodity. The physical feature of the commodity made it acceptable with the help of exchange. In the recent times, government issues types of money as public tenders, fiat money, credit and debit cards etc. It is a liquid asset and used for the dealing with people. Men and departments use it as exchange of goods and services. It is called store of value and unit of account. It can measure the value of artificial things. Before the introduction of currency and coins, most part of economic dealings depended on barter system. Traders did their direct trading with the provided goods according to their need. In old times, the dealing was settled in the exchange of goods only. The goods were crops, animals, spices, cloths and minerals, coco beans and equipment etc. traders were very assured about the trading of these goods in future. . This created the problem of double consent i.e. transactions could only take place if the parties had something that each other needed while money acted as an intermediary and eliminated this problem. Currency became more effective as economy became complicated with the growth of business. The standard of money was made perfect. . It reduced transaction costs by making value measurement and comparison easier. Also, from precious metals and stamped coins to paper notes, and in modern time’s electronic records, representations of money became increasingly abstract. To be most useful, money must be convertible, stable, easily moved from one place to another, identifiable and stable. These features reduce the transaction cost of using money by simplifying exchanges. It refers to a quality that allows one item to be exchanged, substituted or returned for another item under the assumption of equal value. Thus, units of money must be fungible with each other. For example, metal coins must be pure and standardized in weight, while commodities must be relatively uniform in quality. Using a non-fungible good as money incurs transaction costs that involve valuing each unit individually before exchange. Money must be stable enough to retain its utility for future exchange. A perishable item or an item that deteriorates quickly due to various conversions is not very useful for future transactions. Trying to use an unstable object as money contradicts the essential use and value of future-oriented money. Money should be easy to move and distribute from one place to another so that a significant amount can be carried or transferred. For example, trying to use an item(s) that are difficult or inconvenient to carry as money may require physical transportation, resulting in transaction costs. The authenticity and quantity of the goods must be readily apparent to the consumer so that they can easily agree to the terms of exchange. Using unidentifiable goods as money may result in transaction costs associated with verifying the goods and agreeing on the quantity required for exchange. The money supply must be balanced: the supply of the commodity used as money must be relatively constant over time to prevent price fluctuations. Using a commodity as volatile as money creates transaction costs because of the risk that its value may be lower or higher due to scarcity or abundance before the next transaction. Money is mainly used to exchange goods. However, it also has secondary functions derived from its use as a medium of exchange. Money as a Unit of Account: Because of its use as a medium of exchange for buying and selling and as an indicator of value for all kinds of goods and services, money can be used as a unit of account. Is. This means that money can track changes in the value of goods over time and multiple transactions. People can use it to compare the values of different combinations or quantities of different goods and services. Money as a unit of account makes it possible to calculate profit and loss, balance budgets and value a company's total assets. The utility of money as a medium of exchange in transactions is inherently future oriented. Thus, it provides a means of storing monetary value (without affecting its value) for future use. Therefore, when people exchange goods for money, the money retains a certain value that can be used in other transactions. This ability to act as a store of value facilitates saving for the future and engaging in long-distance transactions. Money can emerge from the haphazard arrangement of markets as traders barter for different goods, some goods will prove easier than others because they are the best combination of the five characteristics of money mentioned above. Over time, these items may be desired as exchange items rather than for practical use ۔ Historically, precious metals such as gold and silver were often used as market-based money. They were highly valued in many different cultures and societies. Today, people in cashless economies often turn to market-based money as an alternative. When a certain type of money is widely accepted throughout the economy, government agencies may begin to regulate it as a currency. They may issue standardized coins or notes to further reduce transaction costs. The government may also recognize some money as legal tender, meaning that institutions must accept the money as a final means of payment. By issuing money, the government benefits from seignior age, i.e. from the difference between the value of the currency and the cost of issuing it. Many countries issue fiat currency, which does not represent any kind of commodity. Instead, fiat money derives its value from the economic power of the issuing government. Its value is derived from supply and demand and stability of government. Fiat money allows the government to conduct economic policy by increasing or decreasing the money supply. Since fiat money does not represent a real commodity, it is incumbent on the issuing government to ensure that fiat money meets the five characteristics of money described above. The International Monetary Fund (IMF) and the World Bank act as global custodians of international currency exchanges. Governments may impose capital controls or establish pegs to stabilize their currency in the international market.