Money is any item which is generally accepted as payment against any goods or services and repayment of debts. Money is widely accepted as a medium of exchange. Central Bank is the institution that authorizes money as a medium of exchange. Without money, all transactions would have to be conducted by barter, which involves direct exchange of one good or service for another. The difficulty with a barter system is that in order to obtain a particular good or service, one has to possess a good or service of equal value which the other party also desires. In other words, the exchange can take place only if there is a double coincidence of wants between the two parties. The chance of getting a perfect double coincidence of wants is negligible and makes the exchange difficult. Money eliminates this problem by serving as a medium of exchange that is accepted in all transactions, by all parties, irrespective of whether they desire each other’s goods and services.
