What money does

"Necessity is the mother of invention." As more kinds of things were traded, over longer distances, people needed a better system.

A common medium of exchange would make trade easy, so money was born. As more people used it to buy and sell, it became the accepted way to pay. Money works because everyone else uses it.

Money has four big jobs:

1. Medium of exchange. The farmer doesn't need to find a shoemaker who wants an ox. He sells the ox for money and buys shoes with money.

2. Standard of deferred payment (paying later). You want a book worth ₹100 but have only ₹50. You could ask the shopkeeper to let you pay the rest later. Many families do this, telling a shopkeeper, "I'll pay on the 1st of the month." A debt can be counted in rupees; you couldn't count it in oxen!

3. Store of value. If the farmer keeps money instead of wheat, he can save it and spend it later. Rupees don't rot, and rats don't eat them!

4. Common denomination. Money measures the value of everything, so we can compare prices. Shoes vs medicine? Just compare the rupees, no arguing.

See it? Each job of money solves a barter problem:

And small coins and notes also solve divisibility and portability.

Money also keeps moving: your parents pay the shopkeeper; the shopkeeper pays workers' salaries; the workers buy things and pay their children's school fees ... The same rupee does many jobs!