What is Money?
Lets discuss about how money really works in real life:
Channel of Exchange
People requires various goods and services in their daily life in order to survive. Money acts as a channel for exchanging goods and services. Previously, only physical money were introduced for trading but in today's modern world both physical and digital currency is used for trading necessary goods and services.
Creation and Management
Every country has their own central bank responsible for balancing the supply of the money in the country. Central banks regulate the money supply applying various rules and regulations and controls the money supply in the market through various services of commercial banks. This plays a major role to control the inflation in the country.
Forms of Money
Few decades ago, nobody had the concept of digital money. People were limited to the concept of physical currency only i.e. coins and notes but due to the advancement of Science and Technology the concept of electronic money(digital transactions, debit/credit card, ATM) has been introduced. This has made the life of people much easier.
Unit of Account
Money acts as a standardized unit of measurement for pricing goods and services. It allows for easy comparison and evaluation of relative value of different items. Prices are expressed in monetary terms and the value of goods and services is determined by their cost in terms of money. This helps to make us known about the worth of any goods and services.
Store of Value
Money has its own value. The money can be stored in various forms. People can store it in bank accounts or keep in their house with security. But the value of the money could be affected through various factors such as inflation rate and world recession.
Money attracts Money
Money is an valuable asset which helps to create a great wealth. If money is just stored, people won't be benefitted from it but if the money is properly utilized this could be a great way to create better wealth. There are various ways where money can be used to generate money. Investment of money in real estate, businesses, stocks, bonds and other government securities could give a huge return of money in a long run. Its actually a simplest way to earn money from money.
In conclusion, money is a crucial component of economies which acts as a channel of exchange, unit of account and store of value. In order to make it valuable, its creation and effective management from central bank plays an important role. Never forget that money is an biggest asset you can ever have and it acts as a wealth generator so start investing your money in various sectors as per your risk taking capacity. It can help you achieve financial freedom.
Overall, money plays a vital role in driving economic activity, promoting trade and serving as a foundation for financial system worldwide.