Even though money has a role in trade, it is simply a catalyst to trade and has no intrinsic value. To understand this it is perhaps important to consider the role of a catalyst. In chemistry a catalyst plays an active role in a chemical reaction with other chemicals, but is unchanged by it. Money performs this role in trade. It enables a farmer to trade pigs for groceries, grain and machinery parts. It enables a teacher to trade hours spent at school for an overseas plane trip (amongst other things). It plays an essential role in every economy throughout the world, and makes a world economy possible. But as these examples show, money is only a catalyst to trade, not trade itself. For money to work in this way, it must:
- have a consistent value,
- be able to be stored indefinitely, and
- be accepted by those an individual is trading with.
The provision of money (currency) is usually the responsibility of governments. By producing more money – literally printing it and putting it into circulation, they can accelerate the rate of trade. This is called monetary easing. However, a side effect of this is that the value of the currency is undermined and inflation increases. The opposite of this, removing money from circulation, is also the responsibility of governments. This is called monetary tightening. A side effect of this is that the value of the currency is enhanced and the volume of trade is reduced.