A medium of exchange is an intermediary used in trade to avoid the inconveniences of a pure barter system.

In a barter system, there must be a coincidence of wants before two people can trade - they must want exactly what the other has to offer, when and where it is offered, so that the exchange can occur. A medium of exchange permits the value of a good to be assessed and rendered in terms of the intermediary, most often, a form of money widely accepted to buy any other good.

To serve as a medium of exchange, a good or signal need not have any inherent value of its own, that is, it need not be effective as a store of value in itself. Paper money is a useful medium of exchange in part because it has no such value, thus, it cannot lose that value if damaged, and so damaged paper money is easily replaced. Gold was long popular as a medium of exchange and store of value because it was convenient to move large quantities and was inert, and so would not tarnish or lose weight or value.

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