What is 'Money'

Money is an officially-issued legal tender typically consisting of notes and coins. Money is the circulating medium of exchange as defined by a government. Money is often synonymous with cash and includes various instruments such as checks. Each country has its own money that is used for 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 value within an economy. The value of money is not necessarily derived from the materials used to produce the note or coin. Instead, the value is derived from the amount shown on its face partnered with the public’s willingness to support the displayed value.

Foreign Currency and Exchange Rates

Some countries share a currency. For example, countries in the European Union share the euro. 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 February 5, 2017, the exchange rate between the euro and the US dollar was 1.24, where 1 euro bought 1.24 U.S. 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, 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, paper money or notes include the affirmation that the note is legal tender for all debts, public and private; in Australia, the notes include the affirmation that the 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 because 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 and Transaction Rights

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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