LeoGlossary: Medium of Exchange

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Any item that is widely accepted as exchange for goods and services. It is an intermediary instrument that facilitates the sale, trade, and purchase of goods between parties.

To be effective, the medium of exchange has to have a standard of value. In our present modern day system, this is filled by currency.

Medium of exchange overcomes the limitations of barter. Since there is an agreed upon value, transactions between strangers can occur. At the same time, we also see the level of commercial activity increase since the intermediary eliminates the need for people to match items willing to swap.

This is viewed as one of the characteristics of money, along with unit of account and store of value.

Since our monetary system uses, for the most part, ledger technology, many feel that cryptocurrency will end up service as the medium of exchange in the future. The use of distributed ledger technology means that balance sheet banking can take place but in a decentralized fashion.


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