Money - Financial definition

Money has taken many forms through the ages, but it consistently has three functions: store of value, unit of account, and medium of exchange.

Money needs to hold its value over time. Thus it can be saved and exchanged at a later time with a value that is reasonably predictable.

Money is an efficient store of value, but not a perfect one, as inflation slowly erodes the purchasing power of money over time.

Money provides a common measure of value which allows entirely different things to compare against each other.

Money is widely accepted as a method of payment, either by convention or by legal obligation. When shopping at the supermarket, one can trust that the cashier will accept money as a payment. This function of money is certainly its most important one.

Money is fairly durable and bills and coins, for example, can easily be replaced if they become worn.

Easy to transport and store.

A 20 euro bill can be exchanged for smaller denominations, like for example two 10 euro bills or four 5 euro bills.

All bills and coins are interchangeable.

In order to maintain its value, money must have a limited supply.

Unless people know that the money they accept in exchange for goods and services will be received by others as well, they will not accept it.