Today, we use money as medium of exchange because the barter system faces a number of setbacks among which are the following:

It depends on double coincidence of wants. For example if one goat would be exchanged for six hens, it is necessary to find mat person with hens and wants a goat in exchange. The use of money makes exchange easier. The owner of a goat can sell it to anyone who has money and then use that money to purchase the hens. Thus money enables us to buy what we please, where and from whom we please.

Secondly, there is a problem of deciding the quantity and value of each commodity to be exchanged for another as goods may be of different uses and values. Suppose a shoe-maker wants some oranges and is lucky to find somebody who has oranges and wants shoes.

How many oranges would be equivalent to the pair of shoes? Money provides a common denominator in terms of which the value of each commodity can be expressed. The value of any commodity is given by its price and this makes comparisons and therefore exchange easier. Since money is divisible into small fractions, we can use it to buy the smallest things as well as the largest.

In a barter economy future payments would have to be stated in terms of specific goods or services borrowed, while this could be done, it would pose the problem of differences in the quality of goods exchanged. Money   solves this problem by expressing the value of each commodity in terms of price.

Then there is the difficulty of holding wealth, the storage of goods is inconvenient because the stored commodity may deteriorate. Storage may be costly, and it may be difficult to dispose of the commodity quickly without substantial loss, should the owner wish to buy something else. Money is relatively stable in value and so is a good store of value.

Finally barter requires heavy and bulky goods to be transported from place to place until a party with whom to exchange is found. This is costly and risky.

With the use of money, the owners of such goods can sell them and carry the money which is high in valuer but small in bulk.