Money works because it fulfils four jobs. Understand them and you understand why inflation, deflation and currency crises behave as they do. Here is the simple explanation.
1. Medium of Exchange
Money lets you trade without barter — you sell goods for naira/dollars, then buy whatever you need. It ends the double coincidence of wants.
2. Unit of Account
Money provides a common measure of value — prices, wages and taxes are quoted in it, so everyone compares value in the same scale.
3. Store of Value
Money keeps purchasing power over time — you can save it. This is why inflation matters: it erodes money's ability to store value.
4. Standard of Deferred Payment
Money settles future debts and contracts; loans and commitments are expressed in it, enabling credit and long-term planning.
Why It Matters
When a currency loses its store-of-value job (high inflation), people switch to alternatives — the foundation of economic psychology.
FAQ
Is gold money?
Historically yes; today its role is mostly a store of value rather than a medium of exchange.
Is crypto money?
Some crypto can serve parts of money's functions, but often fails as a stable store of value.
Related: Currency Fluctuations and Inflation.