Functions of money
FUNCTIONS OF MONEY
a) Medium of Exchange:
In money economy money is as a medium of exchange between the buyer and seller. Goods and services are purchased with money and sold for money. By selling a commodity for money he can buy anything from anybody by utilizing that money.
b) Measure of value:
In economy the value of a commodity is expressed in terms of money. If the value of a commodity is expressed in terms of money then it is called as price. E.g. value of an elephant = Rs. 2,00,000. Thus, money removes difficulty of the common measure of value in barter system.
2) secondary functions of money:
a) Store of value:
In barter system people could not store the value for long period because they have to store the value in terms of commodities. But in money economy we can store the value of a commodity and use it in the future. This is possible by selling the commodity for money which can be use on any day in future.
b) Transfer of value:
In barter system people could not transfer the value of a commodity because the commodities like house, land etc. Could not be transported form place to place. But in money economy we can sell the house and land and by using that money we can buy another house or land in other places.
c) Standard of Deferred payment:
Deferred payment means payment to be made at a future date. Money is acting as the standard of deferred payments. Borrowing and lending becomes possible without any difficulty in money economy. The lender gets back his money facilities credit transactions and it widens the range of business transaction.
3) Contingent:
a) National income Accounting:
The value of all goods and services produced in a country in a year can be measured due to money. The money value of all the goods and services produced in a country in a year is called national income.
b) Basis for banking and credit system:
Accounting is possible only by means of money. Money provides basis for the modern credit and banking system. Money market and capital market could be developed due to the use of money.
c) Purchasing power and transfer:
Money has the purchasing power in monetized economy. Goods and services are purchased by money. Value of a commodity is easily transferred from place to place due to the purchasing power of money.
d) Facilities production:
Money is productive. It facilitates production. The factor services like land , labour, capital, etc. Can purchased with money by the firms and they produce goods. It means money facilitates production.
e) Liquidity:
Money is the most liquid asset. By using currency notes and coins we can buy the goods and services immediately.
f) Maximum utilization of resources:
Due to usage of money, resources in the country can be fully utilized. In other words, the available resources can be easily mobilized with the help of money and they can be used for producing goods to satisfy human wants.
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