In economics, every once in a while we are faced with monetary realism and we find ourselves questioning different factors like where does money get its value from? Or how does society learn to trust these pieces of paper or coins as mediums of exchange? It is during these times that it becomes helpful when we break this demand for fiat money into the two main components which are acceptance value and quantity value of money.
Let’s break it down below and make some sense out of this.
Acceptance value of money
The acceptance value of money is essentially the public’s willingness to accept a specific form of currency as their country’s main medium of exchange and unit of account. In most cases, this is usually achieved through a legal process however this has been challenged in recent history with the emergence of crypto currency which has been highly unregulated.Ultimately, it is the duty of government to regulate monetary systems within which money is utilized but at the same time, government cannot force its citizenry to accept this money as the only acceptable medium of exchange.
Quantity value of money
The quantity value of money is essentially the acceptance of a specific form of currency in terms of its purchasing power, production value,inflation, and exchange rates among other factors. Unlike the acceptance value of money which can be enforceable by law, the quantity value of money tends to be somewhat unstable and has the potential to result in a monetary collapse.
All-in-all, the physical notes and coins we use as cash, in themselves don’t have intrinsic value however, they serve as an acceptable medium of exchange that the citizenry is comfortable to use in exchange for various goods and services that they need. It is therefore the responsibility of government to ensure that there is a fully functioning banking system too oversee distribution of the money as well regulation of its usage. If this is not in place, a country’s monetary system stands the risk of collapsing.