Functions of money

You can think of money serving three primary roles.

Unit of Account

It’s a way to measure the value of things. Instead of making arbitrary estimations on what goods or services are actually worth, we have this shared unit that we compare everything to. This is how we perceive something as cheap or expensive.

Medium of Exchange

In order for an economy to work and for goods and services to be exchanged across its members, we need something universal to trade it with. It has to be universal because it’s hard to exchange in fairway something that is arbitrary and not divisible into smaller components.

Image how many sheep would you be willing to trade for a cup of coffee. One is too much and less just can’t happen.

With money as a Medium of Exchange, we now have a universal ‘thing’ that we all agreed upon, which makes exchange possible since everyone can accept it as something of value.

Store of Value

Store of value is a way to save value for possible future use. This is similar to gold or land being a store of value as well.