What is money?

Money is an agreement within a community of people and it is mostly used as a medium of exchange or to store value. This agreement allows people to use money to pay for goods and services.

The value of money is determined by the amount of goods or services that the community agrees on it is worth, when they set their agreement. This value is not constant, but changing over time. If the value of money is decreasing, you get less goods for your money and inflation has happened. The opposite is called deflation.

Money in the form of currencies is usually issued and guaranteed for by governments, because they are trustworthy instances. In most developed countries in 2020 the governments have central banks as an instance to manage the currency, interest rates and the supply with money. An upcoming alternative, to money that is issued by governments, is cryptocurrencies that are gaining in popularity in the 21st century.

Different countries are using different currencies and they can be exchanged and traded. The value of different currencies relative to each other is changing all the time depending on their demand and supply.