Medium of Exchange

What is a medium of exchange?

A medium of exchange is an item accepted as a payment method when exchanging goods and services. A society’s currency is its standard medium of exchange. 

A medium of exchange is helpful when two parties can’t or don’t want to barter. For instance, a lawn care company might need a lawyer’s services, but the lawyer lives in an apartment complex and has no use for mowing. In this case, a medium of exchange acts as a go-between, transferring the value of the services from the buyer to the seller.

Throughout history, societies have used various mediums of exchange, like salt, gold, tobacco, and cigarettes. These items are useful in trade because they are portable, accessible, and recognizable.

Remittance and money transfer software helps organizations conduct business around the world without worrying about currency conversion. Companies can use this software to pay invoices or transfer funds securely. It usually integrates with foreign exchange software.

Medium of Exchange Software

Software, die medium of exchange als Funktion oder Begriff erwähnt.

Freshdesk

Types of mediums of exchange

In today’s world, mediums of exchange are nearly always types of money. In a transaction, buyers pay sellers in transactions via:

• Commodity money: This term means that the item used for exchange has worth other than its value as money. In other words, it has intrinsic value. For example, societies have long used precious metals to broker trade.
• Fiat money: Buyers use paper or other tokens, which have little to no intrinsic value, as mediums of exchange. Fiat money isn’t backed by a valuable commodity like gold or silver. Instead, the government declares it as legal tender. 
• Representative money: This kind of money is a piece of paper with assigned value backed by commodities with intrinsic value. The U.S. used to have a representative money system because its paper currency was backed by gold. Representative money still exists in the form of checks, credit cards, and money orders.
• Electronic money: In recent years, electronic money has become popular for its ease of use online. Backed by fiat money, electronic money is an alternative to paper money (fiat) or checks (representative).
• Cryptocurrency: Some people and entities are now accepting encrypted digital currency as a medium of exchange. Also known simply as “crypto,” this medium isn’t backed by any commodity or regulated by a government. 

Basic elements of a medium of exchange

Societies’ mediums of exchange have shifted throughout history.

To be considered a medium of exchange, an item must be:

• Recognizable. If a medium of exchange is recognizable at first glance, it’s more likely to be widely accepted. 
• Divisible. Since its purpose is to facilitate trade, a medium of exchange should have smaller units of measurement. While a $50 bill can’t be physically cut into smaller pieces, a user can divide it into less valuable denominations of paper money and coins.
• Portable. Smaller items, such as shells, salt, and gold coins, have historically been used to transfer value in trade since buyers can easily carry them to a marketplace.
• Counterfeit-resistant. To gain acceptance in society, mediums of exchange must be resistant to falsification. For example, cryptography keeps cryptocurrency secure by encrypting sensitive data.
• Uniform. A common size and shape creates a sense of trustworthiness, such as the predictability in size, shape, color, and design of the United States quarter.