Functions of Money
Introduction
Money is a daily resource for humans. We don't typically give it much thought, even though
we earn and spend it. Any good that is commonly accepted as the full payment for goods and
services is referred to as money by economists. Over the millennia, money has taken many
several shapes.
According to D.H. Robertson, “Anything which is widely accepted in payment for goods or
in discharge of other kinds of business obligation, is called money.”
Functions of money:
The functions of money can be divided into two categories, i.e., Primary Functions and
Secondary Functions. The Primary Functions are the main or basic functions of money;
whereas, the Secondary Functions are the subsidiary or derivative functions of money.
Primary function :
The most significant tasks that money completes in any nation are categorised as primary
functions.These functions are:
1. Medium of Exchange:
Money can be used as a means of exchange for all payments pertaining to products and
services. It is the primary purpose of money. Since money is used by everyone, it is the
medium of exchange for all transactions.
The primary issue of the twofold coincidence of desires and the issues with the barter system
are resolved by this feature of money.
Money serves this purpose in an economy by facilitating trade and enabling independent
purchase and sale transactions.
The potential of money to satiate human desires is limited. Nonetheless, it has the authority to
purchase the commodities and services that people need and desire, so meeting their needs.
2. Measure of Value:
Money serves as a common criteria for measuring value, allowing the monetary value of
every commodity and service to be articulated.
It would be impossible to maintain corporate records without the role that money plays in
society. It is sometimes referred to as a Unit of Account since it aids in comparing the costs
of goods and services.For instance, the unit of account is the rupee in India, the dollar in
America, etc.
It is much simpler to compare prices and determine the exchange ratio between all goods and
services when their values are reduced to a single unit.
Secondary Functions:
Secondary functions are supplementary to primary functions and are derived from primary
functions; therefore, they are also known as Derivative Functions.
1. Standard of Deferred Payments:
According to the Standard of Deferred Payments, money acts as a "standard of payment,"
meaning it must be made either now or soon. Millions of transactions take place every day in
which the payment is delayed. Money promotes these kinds of transactions, helps in capital
production, and advances the country's economy. The following reasons make this function
of money significant: It promotes the development of financial institutions.
It streamlines the loan and borrowing processes.
It simplifies the borrowing and lending operations.
2. Store of Value or Asset Function of Money:
The most practical and cost-effective approach to keep wealth is with money as a store value,
which can also be utilised to carry over purchasing power into the future.
Money as a store value has the following advantages:
Because products are perishable and expensive, wealth in the form of goods was very
difficult to store. Since one can keep money for as long as possible, money offers a solution
to this issue.
The widespread acceptability of money is one of its qualities. As a result, cash can be used
whenever necessary to pay for products and services.
Saving money is significantly simpler and more safe than storing commodities for later use
because money is easily transportable.
