Money is a language uniquely understood by human beings. Money is any verifiable financial document or material typically accepted as payment of goods and services and payment of debts, including taxes, in a certain polity or economic context. Money has no intrinsic value independent of human action or culture and is normally measured by the purchasing power of money and the demand for it among educated society. In general, money is regarded as a social institution based on the principle of reciprocity-whereby one gives something in return for something else being given away in the form of goods and services to another person.
The buying power of money varies with changes in demand due to political and economic conditions. This means that what is important to one nation will not necessarily be of importance to another. For instance, in the United States for the purchase of goods is highly political, with an emphasis on the political system and government policies rather than on the consumer goods market. Thus the goods market plays a greater role in the exchange process than does the interchange of money. In other words, exchange deals place exchange and money at the heart of the transaction costs. This makes the goods market the focus of the model.
The goods and services market then are the process through which money is exchanged for goods and/or services. Exchange rates are determined by the government through the central bank. This determines the relative strength of the domestic currency against that of foreign currencies. This strength is primarily based on the foreign exchange rate that has been derived from official Forex rates. This form of measurement of the exchange rate between two currencies is called the gross domestic product (GDP) and is widely used as a measure of the performance of the economy.
The significance of money is evident in the very nature of the process of exchange. Money is a medium of exchange, a tool for communication. It is the means of making payments and is accepted as payment in all walks of life. When money is transacted in the economy, it is important that the parties to the transaction to be able to both agree on a price that both will accept and will be acceptable to all concerned.
By using a barter system, individuals exchange goods and/or services without using money directly. Because money facilitates exchange, the barter system enables individuals to exchange without having to complete a monetary transaction. The existence of barter transactions allows for an efficient process of completing transactions without the need for a third party intermediary such as a bank account.
The most valuable aspect of bartering lies in its ability to provide an exchange system that allows the parties to enter into mutually beneficial trades without the need for the transfer of currency. The success of this system is based upon the fact that goods can be bought and sold without the need for the money of the buyer and the seller of the item to be converted into currency. In essence, bartering provides for a means of combining two different resources to create a third resource. The success of bartering and the use of commodity money makes for a win-win situation for all involved.
