Concept of money

Money is a medium of exchange or money is anything which is generally accepted in the settlement of debts and other obligations.

Why do we use money?

1. Medium of exchange
   • Money facilitates transactions by eliminating the need for a barter system (where goods or services are exchanged directly for other goods or services).
   • With money, people can easily exchange goods and services without the problem of finding a mutual want, which is often a limitation of bartering.
2. Unit of account
   • Money provides a standard measure of value, making it easier to compare the value of different goods and services.
   • It allows for consistent pricing and enables people to understand how much things cost in relation to each other, aiding in budgeting and financial planning.
3. Store of value
   • Money holds value over time, which allows people to save and store wealth for future use.
   • Unlike perishable goods or items that may lose value, money (especially in forms like bank savings) can maintain its purchasing power over time.
4. Standard of deferred payment
   • Money enables people to enter into contracts and agreements where payments are made in the future.
   • For example, loans and credit transactions involve money being exchanged over time, with future payments made in monetary terms.
5. Facilitates economic growth and development
   • Money promotes investment, entrepreneurship, and economic expansion by providing a reliable system for capital flow and wealth creation.
   • It allows businesses to invest in expansion, innovation, and production by providing an efficient way to allocate resources.
6. Liquidity
   • Money is the most liquid asset, meaning it is the easiest and quickest asset to convert into other goods or services without losing value.
   • This liquidity makes it easy for individuals and businesses to meet their immediate needs and obligations.
7. Measurement of economic activity
   • Money acts as a tool for measuring the overall economic activity, through metrics such as Gross Domestic Product (GDP), inflation, and income levels.
   • Economists and policymakers use money to track the health of an economy and make informed decisions.

Currency

It refers to the bank notes and coins in circulation in a country. The currency in Tanzania is the shilling.

Legal tender

The money which by law must be accepted in settlement of debts within a country.