What is 'Money'

Money is an officially-issued legal tender generally consisting of notes and coin, and is the circulating medium of exchange as defined by a government. Money is often synonymous with cash and includes various negotiable instruments such as checks. Each country has its own money that is used as a medium of exchange within that country.

BREAKING DOWN 'Money'

Also referred to as currency, money is a liquid asset used in the settlement of debts that functions based on the general acceptance of its associated value within an economy. The value of money is not necessarily derived from the materials used to produce the note or coin and, instead, derives based on the amount shown on its face partnered with the public’s willingness to support the value as displayed.

Foreign Currency and Exchange Rates

Some countries share a type of currency, such as the euro used by the European Union. The currency of one country can be exchanged for the currency of another via a currency exchange. The current exchange rate determines how much of one currency must be used to purchase a specified amount of the other currency. For example, on July 12, 2016, the exchange rate between the euro and the US dollar was 1.10635, where 1 euro bought 1.10635 US dollars.

Legal Tender

Legal tender is a type of payment that can lawfully be used to meet financial obligations. Money, as legal tender, is a commodity or asset, or an officially-issued currency or coin that can be legally exchanged for something of equal value, such as a good or service, or that can be used in payment of a debt. Currency may include notice of the legal tender status. In the United States, for example, the paper money includes the affirmation that this note is legal tender for all debts, public and private; in Australia, the notes include the affirmation that this Australian note is legal tender throughout Australia and its territories.

Exclusions from the Money Classification

Not all methods that can be used to settle a debt are considered money. For example, a credit card is not considered money as it serves as a method of transferring a debt owed from one party to another. When a person uses a credit card to purchase items from a retailer, the debt associated with the retailer is paid by assuming a debt that will be owed to the credit card issuer.

Legal Tender Acceptance for Transactions

While U.S. currency is considered legal tender for the settlement of debts, individuals and business have a right to permit only certain forms of payment by debtors as limited by applicable state and federal law. This allows an establishment to refuse to accept bills larger than $20 or the right to refuse the payment of a substantial debt through the use of only pennies.

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