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Thursday, 23 February 2012

The monetary nature of a monetary item


The monetary nature of a monetary item

A monetary item is an economic item very different from the other two basic economic items (variable and constant real value non-monetary items) because of its monetary nature, namely the unique combination of its attributes during inflation and deflation - some of which are listed below.

Monetary items are money held and items with an underlying monetary nature that are substitutes for money held. Bank notes and coins are examples of money held.

Attributes:

its three functions, namely
medium of exchange,
store of value and
unit of account,
portability,
it is generally available in small change,
it is only a monetary item within (not outside) an economy (foreign exchange is a non–monetary item),
it is legal tender,
it is always affected by inflation and deflation,
which affect all monetary items evenly,
when it has no exchangeability with foreign exchange currencies it is worthless.


Nicolaas Smith

Copyright (c) 2005-2012 Nicolaas J Smith. All rights reserved. No reproduction without permission.