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Purchasing power refers to the ability of money to buy goods and services. It is a crucial concept for understanding why money holds value.
When prices of goods and services increase, the purchasing power of money decreases, because each unit of currency buys fewer items. This means that inflation, the rate at which the general level of prices for goods and services rises, directly affects purchasing power.
Conversely, if prices fall, the purchasing power of money goes up, allowing you to buy more with the same amount. Therefore, maintaining or increasing purchasing power is an important goal for both individuals and governments. A strong purchasing power suggests a stable or strong currency, while weak purchasing power indicates inflationary pressures.

A medium of exchange is an essential function of money. It's what allows us to facilitate trade without the complications of a barter system. In a barter system, you need to have a double coincidence of wants, meaning both parties involved in the exchange need to have exactly what the other wants. Money solves this problem by providing a universally accepted medium that all parties can use.
With money, you can sell your goods or services for currency, and then use that currency to purchase other goods or services you need. This separation of selling and buying transactions makes the economy much more flexible.
The use of money as a medium of exchange is efficient because it saves time, effort, and resources. It simplifies and speeds up transactions, making it easier for markets and economies to grow.

Trust is the backbone of any currency's value. Without trust, money cannot function as a medium of exchange. In ancient times, money often had intrinsic value. Gold and silver coins were valuable for their metal content as well as their role as currency.
However, today’s money primarily depends on trust rather than intrinsic value. Fiat currency, like the paper or digital money used today, does not have intrinsic value nor is it backed by physical commodities. Its worth comes from the trust and confidence people have that it will be accepted by others.
Trust in currency is maintained by governments and financial institutions. They regulate the money supply and aim to ensure stability in order to retain public confidence. Because this trust is based on perceptions and expectations, maintaining it is critical for economic stability.