What is

Money - Explanation and definition of money

What is money

We are all familiar with money, daily we manage to pay products or services such as a baguette or an bus ride, on the other hand usually we get it as a reward for our work and daily effort, no doubt money is essential in today's world in which we live, but what is money really?

Money is defined as a physical or virtual way which is used to exchange goods and services in a society that has accepted and recognized it, the money has the objective to facilitate and improve the barter system used in the early exchanges of products for humans, in order which the money is recognized as such must fulfil the following four conditions:

  • It must be accepted, recognized and generating trusted by a large part of the population as a way of exchange in all business transactions. For example today we recognize dollar, euro or Mexican peso as money that is accepted as payment in most banks, businesses, retail space...

  • It must be a store of value long-term and durable, allowing to cope with the uncertainty that happen in the economic field at the same time allows save to have purchasing power in the future. For example gold is a precious metal that in times of economic crisis people have always been refuge in him due is a scarce and highly corrosion resistant metal and is therefore a durable good over the centuries.

  • It must be a unit of measurement and must have a fixed price, thus allowing the pricing of goods and services in a quick and equitable way, allowing to compare the price of identical or similar products and services.

  • They must be easily transportable and manageable allowing to make economic transactions in a simple and comfortable way, can you imagine paying a loaf of bread for 20 iron ingots grief were thoroughly weighed 40 Kg?, definitely coins, bills and payment cards are very suitable means to purchase the bread.

Currently we can classify the money into 2 groups:

  • Cash - Represents the set of banknotes and coins that have been manufactured and are therefore physical and tangible money, for example coins of 1 euro or 1 dollar we have in our portfolio and can touch correspond to cash money.

  • Virtual money - is the (intangible) no physical money is represented in accounting notes or checking accounts, for example, when we make a payment with a credit card or from Internet through your computer, the result is that the virtual and electronic number corresponding to our balance decreases based on the price paid for the purchase, we have paid without physically see the money.

History and evolution of money.

The evolution and history of money began in the Neolithic era about 10.500 years ago, since then the money has been changing and adapting to the needs required each time in our history, even today we see that the money we use is completely different money used by our great-grandparents 100 years ago, can encompass these major changes in the next 6 stages:

  • Barter

  • Precious metals and minerals

  • Coins

  • Banknotes

  • Payment Cards

  • Digital and virtual money


Approximately 10.500 years ago ancient humans began used knowledge, skills and tools necessary to develop the first herds of animals as well as the art of agriculture or cultivation of land to obtain and store foods such as meat, vegetables and cereals or other products such as leather, bone or skin, so our ancestors made sure to have enough food eliminating the uncertainty of getting by hunting and gathering daily.

With this new lifestyle barns and stores of all civilizations were filled with food and other products, as a result born barter, barter allowed exchange those foods and products that had in excess of other products that wished to obtain, for example, a granger changed 1 liter of milk produced by their cows by 1 kg of grain that had a farmer. The main problem with barter is that the granger needed to find some farmer and both agree on a fair amount to the exchange.

Precious metals and minerals.

When it began to establish the first cities and the first trade routes between towns and civilizations is needed to use any type of medium that was easy to carry and had a recognized value among a large population, for it began to use precious metals and minerals as gold, silver or diamonds and pearls, they are all scarce materials providing an extraordinary corrosion resistance, in this new era was beginning to abandon the barter exchange a few precious metals and minerals so that it is eliminated disadvantages presented by the old barter.

Today and especially in times of crisis certain metals and precious minerals like gold, silver and diamonds are recognized as high value of money.


The first coins we know were minted in Turkey about 2.500 years ago, these coins were composed of a natural alloy of gold and silver which worked giving a circular shape, in other countries like China the first coins were variegated forms as bullion, triangles, diamonds ...

As the coins were known to the rulers and kings of the states they began to mint them with a picture of him, which identified the origin of the coin and thus its value and use, today still use this tradition in many banknotes and coins from around the world.

At first the coins were made of alloys of precious metals like gold, silver or bronze, depending on the alloy composition and weight coin acquired one value or another. At present and because of the fiduciary system of our economy, coins are not made with valuable metals whose value is higher than the metal it is made.


In the early IX century Chinese banks developed the first paper money being precursors of the banknotes that we know today. This paper money were backed by Chinese banks and they were accepted by a large majority of Chinese people, substituting large amounts of coins for small and weightless papers, this was a great solution to all merchants who moved all trade routes and it was not necessary to carry heavy bags of coins.

In Europe it was not until 1661 when the first banknotes was printed in Sweden which consisted of papers that certified the amount of money in gold and silver that customers deposited in the Bank of Sweden. In the US's first $ 1 bill was issued in 1862.

Payment cards

Credit and debit cards that we use in our daily purchases do not have a clear origin, some argue its inception in France and other defends its origin in the USA, what is clear is that its expansion was due thanks to Frank Macnamara when in 1950 founded the company Diners Club and created the first independent broadcasting company payment card.

The use of payment cards replaced metal coins and banknote paper for plastic, allowing transport and pay large sums of money by a lightweight, comfortable plastic rectangle.

Throughout history payment cards have constantly changed, initially written or printed on hand all the characters, then the account number and other relevant data was printed, in the early 60s were introduced the first magnetic strips until the first cards appeared that incorporated security chips.

Digital and virtual money

With the evolution of computers and Internet, today we have digital and virtual money, which represents all the money that is exchanged by electronic means as a credit card terminal, computer or smartphone connected to a network.

Online shopping promoted by technology companies like Amazon, Ebay or Apple through its iTunes Store has become the Internet as the new medium for purchases and sales through our computer, tablet or smartphone, where the money correspond an electronic number which is stored in a database from one or more servers, this new payment method has replaced the traditional coin or banknote ceasing to be a tangible money (which we can touch and see it) to be an intangible money (virtual numbers).

Finally and again because of Internet is implanted with great force a new fully virtual coin called Bitcoin, this currency is not backed by any government or state, its success is based on the acceptance of a large part of the sailors or users and its value is governed by the law of supply and demand meeting not regulated under any central bank or financial institution, there are other examples of virtual money as Litecoin, Ripple or Terracoin are increasingly gaining acceptance among users.

what is money