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Functions Of Money

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Mar 16th, 2010
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1. Money as a Medium of Exchange:
The function of money as a medium of exchange solves all the difficulties of barter system. There is no necessity for a double coincidence of wants in the money economy. The man with cow who wants to purchase cloth need not seek a cloth seller who wants a cow. He can sell his cow in the market for money and then purchase cloth with the money obtained.

2. Money as Measure of Value:
In money economy values of all commodities are expressed in terms of money. Money is like the yard stick of cloth merchant, as yard-stick measures all varieties of cloth, money measures the value of all varieties goods. This function of money makes transactions easy and also fair

3. Standard of Deferred Payment:
In a money economy the contracts are made for future payments terms of money instead of goods and promise to repay the loan in money. In this way money is the standard of deferred payments. This function stimulates all kinds of economic activities wjtich depend on borrowed money.

4. Money as a Store of Value:
Goods cannot be stored because they are perishable. People receive their incomes in money form and keep their savings in money form in banks.In this way, money is used to store value of commodities.

5. The essential or primary functions of money are:
a) To serve as medium of exchange.
b) To serve as a measure of value.

The later two functions are of secondary importance because they; derived functions. In modern economy, money plays a very important role. Its disappearance would cause disappearance of the economy itself.


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