Acceptability, Means of Payment, and Media of Exchange

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Creator Series Issue number
  • Vol. 16, No. 3
Date created
  • 1992 Summer
Abstract

  • This essay explains the use of fiat money, or why intrinsically useless objects are accepted as payment in transactions. People accept a particular object as a means of payment because others do: social conventions matter more than the intrinsic characteristics of the object itself. Not everything can become a fiat money, though. If an object is especially costly to hold, for example, it will not be accepted as a means of payment. This explanation of fiat money is illustrated in a simple theoretical economic model.

Related information

  • This essay is reprinted, with the publishers' permission, from The New Palgrave Dictionary of Money and Finance, ed. Peter Newman, Murray Milgate, and John Eatwell; London: Macmillan Press, New York: Stockton Press. © Macmillan Press 1992.

Corporate Author
  • Federal Reserve Bank of Minneapolis. Research Department
Publisher
  • Federal Reserve Bank of Minneapolis
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