Wednesday, 21 March 2012

Monetary nature of a monetary item
A monetary item is an economic item very different from the other two basic economic items because of its monetary nature; namely, the unique combination of its attributes during inflation and deflation, some of which are listed below.

A monetary item is an item the change in real value of which is indicated by internal inflation and deflation.

A monetary item´s attributes in combination determine its monetary nature during inflation and deflation.

Attributes of a monetary item during inflation and deflation

(i)                 It is an unstable medium of exchange.

(ii)               It is an unstable store of value.

(iii)             It is an unstable unit of account

(iv)             It is easily portable or transferable.

(v)               It is generally available in small change.

(vi)             It is only a monetary item within an economy.

(vii)           It is legal tender.

(viii)         The change in its real value is indicated by internal inflation and deflation.

(ix)             Monetary items are generally affected evenly within an economy by inflation and deflation.

(x)               It loses its monetary nature when it´s physical representation (bank note or coin) only has value as a collector´s item; i.e., when it becomes a variable real value non-monetary item.

(xi)             As a bank note or coin, the internal unit of currency has its denomination permanently printed or moulded on it.

(xii)           In modern economies it is created by government fiat in the banking system.

Nicolaas Smith

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