I have food. I don’t need clothes, but I do need water.
Someone else has water. They need clothes.
We could do a complicated multi-party trade. Or, rather than set one of those up for every single necessity of life, find some item that everyone’s willing to trade for. Instead of using items which have intrinsic value such as gold (which we’d presumably also have to trade for), we can use a token whose only purpose is to be that universal item. We call that “money”.
The way we represent that token isn’t really important. It can be metal discs. It can be pieces of paper. It can be numbers in a computer system. But crucially, because everyone is willing to trade what they have for some amount of money, we can each trade the things we have too much of for money, and then trade that money for the things we need.
Again, this is overly simplistic and missing a hell of a lot of nuance. But that’s how money works in the most basic possible terms.
Overly simplistic example:
You have clothes. You need food.
I have food. I don’t need clothes, but I do need water.
Someone else has water. They need clothes.
We could do a complicated multi-party trade. Or, rather than set one of those up for every single necessity of life, find some item that everyone’s willing to trade for. Instead of using items which have intrinsic value such as gold (which we’d presumably also have to trade for), we can use a token whose only purpose is to be that universal item. We call that “money”.
The way we represent that token isn’t really important. It can be metal discs. It can be pieces of paper. It can be numbers in a computer system. But crucially, because everyone is willing to trade what they have for some amount of money, we can each trade the things we have too much of for money, and then trade that money for the things we need.
Again, this is overly simplistic and missing a hell of a lot of nuance. But that’s how money works in the most basic possible terms.
Best ELI5 here!