In order to meet the demands of modern commerce in the respects which have been indicated, the medium of exchange must possess the following characteristics:-
A. It must consist of elements representing many grades of value. - In the United States we need means of payment ranging in value from at least one cent to one hundred thousand dollars, and European nations have found money of even smaller denominations useful. By combination of different elements of the medium it should be possible to represent the exact value of any and every commodity, and the exact amount of the various payments necessary in commercial transactions, and that, too, with the greatest celerity and without difficult calculations. If a commodity is worth twenty-six dollars and thirty-two cents, for example, we should be able to combine from the constituent elements of the medium exactly twenty-six dollars and thirty-two cents of value. If one should wish to make a payment of a million dollars, it should be possible so to do without burdening oneself with a heavy load of metal or running the risk of making mistakes in counting.
B. It must be easily and safely transportable in any and all amounts. - For the purposes of modern commerce currency must frequently be sent by mail or express or freight. It must be carried about in people's pockets and portmanteaus, and stored in banks, treasury vaults, places of business, and the houses of the people. The material or materials of which it is made are, therefore, a matter of great importance. What is suitable for one sort of currency is quite unsuitable for another. A heavy, bulky substance might serve well for small change, but would be an expensive means of making payments in distant places. A commodity possessing great value in small bulk would answer well for large payments and for hoarding, but would be useless for purposes of retail trade and for small purchases generally. Anything possessing high intrinsic value would subject the owner to the danger of loss in case it were sent through the mails or by freight or express. It is, therefore, evident that we need in our currency commodities of different degrees of value as well as instrumentalities which possess little or no intrinsic worth.
C. It must be easily recognized, durable, and certain in its value. - The various denominations of a currency should be recognizable and distinguishable from each other at sight. Otherwise mistakes will be frequent, fraudulent practices easy, and rapidity in making change impossible. Metals used for currency purposes should be put up in the form of coins with their values plainly stamped upon their faces; and the coins of different denominations should be distinguishable by their size, colour, design, or other easily recognizable features. The metals used in the manufacture of coins should also be capable of receiving and holding an easily recognizable stamp.
The fact that the medium of exchange is used as a means of saving and that it must pass from hand to hand year in and year out explains the need for durability. Any commodity which wears out readily would soon lose a portion of its value and become worthless for further service as a medium, to say nothing of the loss, expense, and inconvenience involved in its use. If it were perishable, it would be useless for purposes of hoarding and accumulation.
Absolute certainty of value is also essential to a good medium. If one does not know the exact value of what he is to receive in payment, he will hesitate about selling, or he will raise the price of his commodities or services in a degree sufficient to recoup him for any possible loss from overestimating its value. A medium of uncertain value, therefore, is sure to obstruct trade and to cause spasmodic and speculative fluctuations in prices.
The five characteristic features of a good medium which we have just described enable us to explain the chief component elements of modern currencies. Generally speaking it is true that those elements have survived and become permanent parts of currency systems which have proven to be best adapted to the ends they serve. Arbitrary power directed by ignorance or self-interest has exerted an unfavourable influence here and there and from time to time, but in the long run the necessities and the convenience of the commercial world have triumphed in the survival of the fittest.