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The primary functions that distinguish money are;
Money was historically an emergent market phenomenon that possessed intrinsic value as a commodity; nearly all contemporary money systems are based on unbacked fiat money without use value. Its value is consequently derived by social convention, having been declared by a government or regulatory entity to be legal tender; that is, it must be accepted as a form of payment within the country's boundaries, for "all debts, public and private", in the case of the United States dollar.
The money supply of a country comprises all currency in circulation (banknotes and coins currently issued) and, depending on the particular definition used, one or more types of bank money (the balances held in checking accounts, savings accounts, and other types of bank accounts). Bank money, whose value exists on the books of financial institutions and can be converted into physical notes or used for cashless payments, forms by far the largest part of broad money in developed countries.
The word money derives from the Latin word moneta with the meaning "Coin" via French monnaie. The Latin word is believed to originate from a temple of Juno, on Capitoline, one of Rome's seven hills. In the ancient world, Juno was often associated with money. The name "Juno" may have derived from the Etruscan goddess Uni and Moneta either from the Latin word "monere" (remind, warn, or instruct) or the Greek word "moneres" (alone, unique).
In the Western world, a prevalent term for coin money has been specie, stemming from Latin in species, meaning "in kind".
The use of barter-like methods may date back to at least 100,000 years ago, though there is no evidence of a society or economy that relied primarily on barter. Instead, non-monetary societies operated largely along the principles of gift economy and debt. When barter did occur, it was usually between either strangers or potential enemies.
Many cultures around the world eventually developed the use of commodity money. The Mesopotamian shekel was a unit of weight and relied on the mass of something like 160 grains of barley. The first usage of the term came from Mesopotamia circa 3000 BC. Societies in the Americas, Asia, Africa, and Australia used shell money - often of the cowry. According to Herodotus, the Lydians were the first people to introduce the use of gold and silver coins. It is thought by modern scholars that these first stamped coins were minted around 650 to 600 BC.
The system of commodity money eventually evolved into a system of representative money. This occurred because gold and silver merchants or banks would issue receipts to their depositors, redeemable for the commodity money deposited.
Eventually, these receipts became generally accepted as a means of payment and were used as money. Paper money or banknotes were first used in China during the Song Dynasty. These banknotes, known as "jiaozi", evolved from promissory notes that had been used since the 7th century. However, they did not displace commodity money and were used alongside coins. In the 13th century, paper money became known in Europe through the accounts of travelers, such as Marco Polo and William Rubruck. Marco Polo's account of paper money during the Yuan Dynasty is the subject of a chapter of his book, The Travels of Marco Polo, titled "How the Great Kaan Causeth the Bark of Trees, Made into Something Like Paper, to Pass for Money All Over his Country".
Banknotes were first issued in Europe by Stockholms Banco in 1661 and were again also used alongside coins. The gold standard, a monetary system where the medium of exchange is paper notes that are convertible into pre-set, fixed quantities of gold, replaced the use of gold coins as currency in the 17th to 19th centuries in Europe. These gold standard notes were made legal tender and redemption into gold coins was discouraged. By the beginning of the 20th century, almost all countries had adopted the gold standard, backing their legal tender notes with a fixed amount of gold.
After World War II and the Bretton Woods Conference, most countries adopted fiat currencies that were fixed to the US Dollar. The US Dollar was in turn fixed to gold. In 1971, the US government suspended the convertibility of the dollar to gold. After this many countries de-pegged their currencies from the US Dollar, and most of the world's currencies became unbacked by anything except the government's fiat of legal tender and the ability to convert the money into goods via payment. According to the proponents of modern money theory, fiat money is also backed by taxes. By imposing taxes, states create demand for the currency they issue.
In Money and the Mechanisms of Exchange (1875), William Stanley Jevons famously analyzed money in terms of four functions;
By 1919, Jevon's four functions of money were summarized in the couplet;
Money's a matter of functions four,
A Medium, a Measure, a Standard, a Store.
This couplet would later become widely popular in macroeconomics textbooks. Most modern textbooks now list only three functions, that of medium of exchange, unit of account, and store of value, not considering a standard of deferred payment as a distinguished function, but rather subsuming it in the others.
There have been many historical disputes regarding the combination of money's functions, some arguing that they need more separation and that a single unit is insufficient to deal with them all. One of these arguments is that the role of money as a medium of exchange conflicts with its role as a store of value: its role as a store of value requires holding it without spending, whereas its role as a medium of exchange requires it to circulate.
Others argue that storing value is just a deferral of the exchange, but does not diminish the fact that money is a medium of exchange that can be transported both across space and time. The term "financial capital" is a more general and inclusive term for all liquid instruments, whether or not they are uniformly recognized tender.
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