Money

Without money, people would have to barter. A baker who wanted shoes would need to find a shoemaker who happened to want bread at that moment. Money removes this problem: the baker sells bread for money and uses the money to buy shoes from anyone.

Money does three jobs. It is a medium of exchange, because people accept it in payment. It is a unit of account, because prices, wages and debts are all measured in it, so very different things can be compared. And it is a store of value, because it can be kept today and spent later.

Most money today is not coins and notes. It exists as balances in bank accounts and moves electronically through cards, transfers and apps. Modern money is also mostly fiat money, meaning it is not backed by gold or another commodity. People accept it because the law recognises it, taxes must be paid in it and they trust others will accept it too.

Money is an imperfect store of value. If prices rise by 4% in a year, 1,000 held as cash will buy only about as much as 962 would have bought a year earlier.