Medium of exchange is one of the three essential functions of money, together with unit of account and store of value. Money as medium of exchange means it represents an intermediary instrument used to perform transactions between different parties. Transactions using a medium of exchange are more efficient than – and overcome the limitations of – barter exchange performed between two parties.
In the words of nef 1, the medium of exchange function of money “enables us to conduct efficient transactions and trade with each other. Money enables us to exchange without the ‘double coincidence of wants’ which requires both parties to have exactly the right quality and quantity of a commodity to make an exchange”.
- New economics foundation, (2013) Energising Money – An introduction to energy currencies and accounting, London, p.18 ↩