What is the medium of exchange’?
The medium of exchange is an intermediary instrument used to facilitate the sale, purchase or trade of goods between the parties. For the tool to function as a medium of exchange, it must be a standard value that is acceptable by all parties. In the modern economy, the medium of exchange of currency.
Breaking down the ‘medium of exchange’
The use of a medium of exchange allows to increase the efficiency of the economy and creates more trade. In a traditional barter system, trade between two parties could only occur if one side of a product that is valued by the other party, and Vice versa. However, the chances that this will happen at the same time are minimal. Therefore, using a medium of exchange, like gold, if one side was a cow and need a mower, the owner of the cow can find a buyer for the cow and get the gold coins. That person can find someone who sells lawn mowers that you can buy for gold coins.
Money as a medium of exchange
Money allows anyone who has equally participate in the market. When consumers use money to purchase goods or services, they are, in fact, betting in response to your asking price. It creates order and predictability in the market. Producers know what to produce and how much to take, and consumers can plan their budgets at a predictable price.
When the money, and the currency is not possible, as a medium of exchange, or monetary units cannot be precisely estimated, no predictability, no ability to plan and no way to assess the supply and demand. In short, the markets become chaotic. Prices inflate, the fear of scarcity and uncertainty, but the sentence is reduced because of the behavior of accumulation, and the inability of manufacturers to replace the food fast enough.
Alternative currencies as medium of exchange
Alternative currencies have been used at all times as a means to promote trade or strengthening of the national currency in times of economic downturn. At the beginning of the 20th century, companies were forced to issue company scrip and other forms of emergency currency to pay for their employees, because the mass bankruptcy of banks has caused widespread cash shortages. Scrip could be exchanged for food and services or intended for the subsequent repayment in US dollars when they became available.
Local currencies have increased throughout the United States with the objective of promoting economic growth and sustainable development in the region. The most famous case of a successful local currency occurred in the Berkshire region of Massachusetts. BerkShares was launched in 2006 and now accepted in all communities for hundreds of businesses. The cost BerkShares is tied to the value of the dollar, but is issued at a discount.