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Money is something that everyone knows something about. But what is its relationship in the economic picture?
Money is defined as anything that is used as a medium for exchange for goods and services. This is different than trading or barter where one directly exchanges one thing for another. Currency is paper money issued by the government.
In ancient times, people used such objects as cattle for their medium of exchange. This was obviously very clumsy and difficult, so as trade became more important and popular, money evolved as a convenient medium or way for people as they sought goods and services.
The History of the Money or Monetary System in the United States
The money or monetary system in the United States was based on backing of two metals, gold and silver during the nineteenth century. This meant that any money could be exchanged for a designated amount of gold or silver. Thus all paper money or currency was backed by gold and there later existed a gold standard in the early twentieth century.
Today’s currency is not tied to the gold standard and is inconvertible fiat money, meaning it stands more or less alone as a means of exchange, not necessarily backed by gold or other reserved metal or commodity. Money is then valuable because the government says so, by fiat.