Lesson: Money as the medium of exchange What Is a Medium of Exchange

Example of an Alternative Medium of Exchange
Across the U.S., local currencies have sprung up with the primary purpose of fostering economic growth and sustainability in a region. The best-known case of a thriving local currency is BerkShares, launched in 2006 and still accepted by some 350 businesses in the Berkshires region of Massachusetts.
The value of BerkShares is pegged to the value of the dollar but the bills are issued at a discount. BerkShares can be obtained at participating bank branches (nine branch offices of three local banks) in exchange for U.S. dollars at a rate of 95 cents.
What Is a Good Medium of Exchange?
A medium of exchange works if its value is immediately recognizable, reasonably stable, and portable. It then serves its purpose as an intermediary for the exchange of goods or services between two parties.
What Is a Bad Medium of Exchange?
A currency is only as good as the government that issues it. Out-of-control inflation, political instability, and government mismanagement are reflected in the value and stability of a nation's currency.
For example, the worst currency in the world at this time, according to World Atlas, is the Venezuelan bolivar.2 Once a strong currency, hyperinflation has made the bolivar almost worthless as a medium of exchange for its citizens.
What Was the First Medium of Exchange?
The earliest medium of exchange may have been a coin issued about 2,600 years ago in Lydia, an ancient kingdom in what is now western Turkey. The coin was made of a gold and silver alloy, it was stamped with an official government image, and the metal had a guaranteed weight and purity.3
Gold and other metals may have been used earlier as a medium of exchange, but the Lydians were the first known to have issued it in a standardized form that could be accepted as having a set value.