Money is used as a medium of exchange because it serves as a common medium through which people can carry out buying and selling. Use of money makes economic activities independent of each other. At the same time, it removes the inconvenience caused by the barter system.
For example, a person wants to sell sugar and buy wheat. He has to look for a person who wants sugar and has wheat to sell. In contrast, if in an economy, where money is used, the person who wants to sell sugar only has to look for a buyer for his sugar. The money which he will get can be used to purchase the wheat or any other commodity in the market. Since, money is used in the exchange process it is called a medium of exchange.
