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In: Economics

Although gold is highly valued by most people, it is difficult to use as a medium...

Although gold is highly valued by most people, it is difficult to use as a medium of exchange. Explain.

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Expert Solution

  • Before money was introduced, gold and other precious metals were used as money or as a medium of exchange.
  • But due to its various difficulties or drawbacks, people slowly started using other highly liquid assets like cash as a medium of exchange even though gold was still highly valued by many people.
  • The main drawbacks that were observed were, the lack of durability in using gold as a medium of exchange as they may not last for a long time. For example if it is stolen.
  • Transportation of gold from one place to another is also very difficult as transportation of currency is an important aspect to be considered while determining the Medium of exchange property.
  • Its value cannot be preserved like the cash as it keeps changing over time. Hence using it as a medium of exchange is not a sensible option.
  • Using gold as a medium of exchange also lacks general acceptability as many people prefer other means of payment rather than using gold.

Rahul Sunny answered 2 years ago
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