Characteristics of money

Commerce study Manual STUDY MANUAL|PDF NOTES|SYLLABUS|REVISION

For a commodity to perfom as money it has to have the following characteristics.

  • Acceptability-money must be acceptable to everyone for it to be used as a medium of exchange
  • Durability-should be able to last for a long time without getting torn,defaced or losing its shape and texture.the material used to make money should therefore be of a quality that resists wear and tear.
  • Divisibility-should be easily divisible into smaller denominations but still maintain its value.this enables the buyer to purchase various quantities of goods and services.
  • Cognizability-should be made of a special material that is easily recognizable to minimize risk of forgery and printing of fake notes and mint coins.this cognizability of money enables people to differentiate various denominations of the currency.
  • Homogeneity-should be made using a similar material so that it appears identical e.g. 500 notes should be printed using the same material and have identical security features to eliminate risk of confusion and forgeries.all notes of the same denomination should be identical.
  • Portability-should be convenient to carry even if it has a high face value.it should neither be too bulky to carry around as this would hamper trade.ie should be light.
  • Stability in value-should last for a long time without changing in value so that it maintains credibility and acceptability.money that fluctuates in value makes people want to hold their wealth in form of goods.
  • Liquidity-should be easy to convert into other forms of wealth.one should be able to quickly convert money into properties or other forms of assets.
  • Scarcity-should be relatively scarce in supply.if money was abundant in supply then it would lose value.
  • Malleability-the material used to make currency coins should be easy to cast into required shapes.



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